Opt-out Provision Does not Save Arbitration Agreement with Class Action Waiver: NLRB

Practical Law Legal Update 0-618-5587 (Approx. 8 pages)

Opt-out Provision Does not Save Arbitration Agreement with Class Action Waiver: NLRB

by Practical Law Labor & Employment

Background

The employer maintained a Dispute Resolution Agreement and required that its employees sign a form acknowledging their receipt of the agreement. The agreement:

Provided that all employment-related disputes (including termination of employment) were subject to binding arbitration and could not be brought to court.
Contained a class action waiver precluding employees from bringing class or collective actions.
Gave employees an opportunity to opt out of the agreement within ten days of receiving it. Employees desiring to opt out of the agreement were required to follow a specified procedure, including returning an opt-out certification form. If an employee did not exercise the opt-out option by following the required procedure, the employee was bound by the agreement with its mandatory arbitration clause and class action waiver.

In addition to providing employees with the agreement and the acknowledgment form, the employer also provided employees a cover letter:

Explaining:
- the nature of arbitration;
- the class waiver;
- the 10-day opt-out procedure;
- how the Agreement affected employees' rights; and
- that employees were free to have an attorney review the agreement prior to deciding whether to opt out.
Containing statements about arbitration being less costly and more efficient than litigation.
Reiterating that a failure to opt out meant that the binding arbitration and class action waiver provisions in the agreement would take effect.

The Board previously held that employers violate the NLRA by requiring employees, as a condition of employment, to sign an arbitration agreement that precludes them from pursuing class or collective actions in court to address their wages, hours, or other working conditions (Murphy Oil USA, Inc., 361 N.L.R.B. slip op. 72 (Oct. 28, 2014); D. R. Horton, Inc., 357 N.L.R.B. slip op. 184 (Jan. 3, 2012)). With this case, the Board addressed whether an arbitration agreement with a class action waiver:

Is an unlawful mandatory condition of employment under D. R. Horton and Murphy Oil.
Would be unlawful, even if the agreement were not mandatory.

Outcome

The Board majority (Chairman Pearce and Member McFerran) held that:

The employer's arbitration agreement containing an opt-out provision:
- was an unlawful mandatory condition of employment; and
- did not cease to be an unlawful mandatory condition of employment because employees could opt out of it.
The opt-out option did not save the unlawful arbitration agreement and the opt-out procedure itself was an unlawful mandatory condition of employment burdening employees in exercising their Section 7 rights.

The Board majority found that:

The 10-day opt-out procedure did not:
- make employee participation in the arbitration agreement voluntary; and
- place the agreement outside the scope of prohibited mandatory arbitration agreements under D. R. Horton.
The opt-out procedure interfered with employees' Section 7 rights by requiring employees to:
- take affirmative steps prescribed by the employer including filling out and sending or mailing the opt-out form within a specific timetable in order to retain their Section 7 rights;
- obtain their employer's permission to engage in protected concerted activity;
- make an observable choice revealing their support for, or rejection of, protected concerted activity; and
- decide whether or not to leave their employer with a permanent written record that they chose to opt out.
(Chromalloy Gas Turbine Corp., 331 N.L.R.B. 858, 858–59 (2000); Allegheny Ludlum Corp., 333 N.L.R.B. 734, 740 (2001).)
Employees would reasonably construe their choice to opt out as rejecting the employer's strong preference that they sign the agreement and forever waive their Section 7 right to litigate employment claims concertedly against the employer.
Even if an arbitration agreement were not a condition of employment because the employer permitted employees to reject the agreement entirely without needing to opt out, that kind of an agreement would still be unlawful because:
- an agreement that prohibits employees from pursuing protected concerted activity represents a prospective waiver of Section 7 rights;
- the Board and the US Supreme Court have struck down agreements that require employees to prospectively waive their Section 7 rights or prevent employees from exercising Section 7 rights; and
- extending the D. R. Horton and Murphy Oil rule to arbitration agreements that are not conditions of employment is consistent with both the Federal Arbitration Act and the Norris-LaGuardia Act.
(Mandel Security Bureau, 202 N.L.R.B. 117, 119 (1973); Ishikawa Gasket Am., Inc., 337 N.L.R.B. 175, 175 (2001); Nat'l Licorice Co. v. NLRB, 309 U.S. 350 (1940); J.I. Case Co. v. NLRB, 321 U.S. 332 (1944).)

Member Johnson dissented, noting that:

Class action waivers in arbitration agreements do not violate the NLRA and should not be found invalid in the first place.
Section 7 does not protect employees' ability to pursue litigation using particular types of procedures like class actions and collective actions.
Arbitration agreements that permit employees to opt-out and remain employed cannot accurately be found "mandatory conditions of employment."

Practical Implications

The Board's decision in On Assignment Staffing extends D. R. Horton and Murphy Oil to arbitration agreements that allow employees to opt-out. The majority equates granting employees the options not to resolve employment disputes through arbitration and not to limit claims to individual claims with requiring employees to seek permission to engage in concerted activity. It is becoming clearer that the Board majority is unlikely ever to find an agreement to arbitrate employment disputes or waivers of class or collective actions lawful.

UPDATE

In Epic Systems Corp. v. Lewis, the US Supreme Court held that arbitration agreements with class and collective action waivers are not prohibited under Section 7 of the NLRA and must be enforced as written under the Federal Arbitration Act (FAA). The decision invalidates the NLRB's analysis in D.R. Horton and Murphy Oil on which this decision relies and therefore abrogates much of the analysis in this case (( (U.S. May 21, 2018); see Legal Update, SCOTUS: Arbitration Agreements with Class Action Waivers Must Be Enforced as Written, and NLRA Does Not Command Otherwise and Article, Expert Q&A on Class Action Waivers in the Employment Context.)

Opt-out Provision Does not Save Arbitration Agreement with Class Action Waiver: NLRB | Practical Law