On January 17, 2014, the National Labor Relations Board Judge Lisa D. Thompson concluded that an agreement that did not prohibit class or collective action still violated Section 8(a)(1) of the National Labor Relations Act because the Agreement “interfere[d], restrain[ed], or coerce[d]” plaintiff and other similarly situated employees’ “substantive rights to file classwide litigation.”  This ruling stems from Cunningham v. Leslie’s Poolmart, Inc., an overtime class action lawsuit, alleging that Leslie’s compensation plan failed to properly calculate the overtime rate for their hourly employees.   After plaintiff brought the suit in California, Leslie’s removed the matter to federal court and filed a motion to compel individual arbitration.  The arbitration agreement at issue, which plaintiff signed as a condition of his employment, did not expressly prohibit the right to assert class-wide, collective, or representative actions.  

After Leslie’s filed its motion to compel, plaintiff’s lawyers filed an Unfair Labor Practice Charge with the NLRB claiming the agreement violated section 8(a)(1) of the NLRA.  Judge Thompson agreed with Plaintiff’s argument and found that the agreement violated the section by “maintaining and enforcing a mandatory and binding arbitration agreement which required employees to resolve certain employment-related disputes exclusively through individual arbitration and, though not expressly, but in practice, required them to relinquish any right they have to resolve such disputed through collective or class action.”  In other words, it was the combination of such an agreement coupled with Leslie’s motion to compel individual arbitration of plaintiff and other similarly situated employees, that made the agreement unlawful, by “clos[ing] the avenue to pursue collective and/or classwide litigation.”  A copy of Judge Thompson’s Order can be found here.

In reaching her conclusion, Judge Thompson rejected Leslie’s arguments including her assertion that the Supreme Court has determined that the NLRA is preempted by the Federal Arbitration Act with respect to mandatory arbitration agreements.  Judge Thompson reasoned that although the Supreme Court has given deference to the enforcement of arbitration agreements, it has not expressly overruled D.R. Horton because it has not addressed or resolved the issue of exclusive arbitration over class and/or collective actions.  Thus, she concluded, even in the face of contrary federal circuit decisions, she was bound by the Board’s precedent in D.R. Horton.  

This decision leaves employers wondering at what point the NLRB will draw the line at denying the enforcement of valid arbitration agreements in the context of class or collective actions.  What does appear to be comforting is the Ninth Circuit’s current position on arbitration agreements that include express class action waivers.  On January 21, 2014, the Ninth Circuit declined to rehear Richards v. Ernst & Young, LLP, where it confirmed the enforceability of class action waivers despite D.R. Horton.  In September of last year, the Court reversed a district court order denying Ernst & Young’s motion to compel arbitration, finding Ernst & Young’s arbitration agreement, which included a class waiver, enforceable.  

The Ninth Circuit rejected plaintiff’s argument that it should rely on D.R. Horton, and instead noted that the Eighth Circuit and a majority of the district courts have declined to defer to the NLRB’s decision “because it conflicts with the explicit pronouncements of the Supreme Court concerning the policies undergirding [the FAA].”  The Ninth circuit also highlighted the Supreme Court’s recent pronouncement in American Express v. Italian Colors Restaurant that “courts must rigorously enforce arbitration agreements according to their terms” including for claims alleging a violation of a federal statute, “unless the FAA’s mandate has been overridden by a contrary congressional command.” Because Congress “did not expressly provide that it was overriding any provision in the FAA when it enacted the NLRA,” the Ninth Circuit vacated the district court’s decision certifying a class action, finding that the district court should have compelled arbitration of plaintiff’s claims based on the signed arbitration agreement which precluded class arbitration.