Employer Committed ULP By Enforcing Facially Valid Arbitration Agreement to Prevent Class and Collective Actions: NLRB

Practical Law Legal Update 4-618-1907 (Approx. 9 pages)

Employer Committed ULP By Enforcing Facially Valid Arbitration Agreement to Prevent Class and Collective Actions: NLRB

by Practical Law Labor & Employment

Background

Countrywide Financial Corporation (CFC) provided real estate finance services through a subsidiary, Countrywide Home Loans, Inc. (CHL). Bank of America (BOA) purchased CFC and became the parent of CFC and CHL.

In August 2007 and September 2008 respectively, two applicants for employment with CHL were required to sign arbitration agreements between the "Company and the Employee," defining the Company as "Countrywide Financial Corporation and all of its subsidiary and affiliated entities . . . and all successors and assigns and any of them."

Applying D.R. Horton, Inc., the ALJ found that CHL violated Section 8(a)(1) of the NLRA by maintaining the Agreement because employees would reasonably read it to prohibit their filing of ULPs with the Board (No. 12–60031, (5th Cir. Dec. 3, 2013)).

In a class action lawsuit alleging minimum wage and overtime pay violations, CFC, CHL, and BOA (respondents) filed motions with the district court under the Federal Arbitration Act to stay the lawsuit and compel the employees to arbitrate their claims individually, not on a class or collective basis. The district court granted the respondents' motions to compel in part and stayed the lawsuit, but left the arbitrator to resolve whether the wage claims should be arbitrated individually or collectively. The parties stipulated that, as of the date of the hearing, this issue had yet to be determined by the arbitrator or other authority. The complaint alleged that by moving the district court to stay the collective lawsuit and compel the employees to arbitrate their wage claims individually, the respondents maintained and enforced the Agreement in violation of Section 8(a)(1) of the NLRA. The ALJ dismissed the allegation, finding that respondents:

Did nothing more than argue before the appropriate forum that the claims be heard individually.
Did not argue that the employees had waived their right to class-wide claims.

Outcome

The Board majority (Chairman Pearce and Member Hirozawa):

Affirmed the ALJ's holding that CHL violated Section 8(a)(1) of the NLRA by maintaining the Agreement because employees would reasonably read it to prohibit their filing of ULPs with the Board.
Contrary to the ALJ, agreed with the General Counsel that respondents violated Section 8(a)(1) of the NLRA by enforcing the Agreement through their district court motion to compel arbitration.

The Board majority found that:

The Agreement violated Section 8(a)(1) of the NLRA under the first prong of the Lutheran Heritage test because employees would reasonably construe its broad policy language, encompassing claims under federal statutes and regulations, to prohibit filing ULP charges which are protected by Section 7 (343 N.L.R.B. 646, (2004)).
The respondents' contention that employees would understand the Agreement did not prohibit them from filing ULPs because the sentence ("the purpose and effect of this Agreement is to substitute arbitration, instead of a federal or state court, as the exclusive forum for the resolution of Covered Claims") made clear that the Agreement applied only to claims brought in Federal or State court, had no merit.
The Board rejected a similar defense in U-Haul Co. of California, holding that "reference to a 'court of law' . . . does not by its terms specifically exclude an action governed by an administrative proceeding such as one conducted by the NLRB . . . [and thus] does nothing to clarify that the arbitration policy does not extend to the filing of ULPs" (347 N.L.R.B. 375, at 377-378, (2006)). Here, as in U-Haul, the reference to arbitration as a substitute for filing a claim in a "federal or state court" did not clarify that the Agreement did not prohibit the filing of ULPs. In fact, the phrase that arbitration was the "exclusive forum for the resolution of Covered Claims" actually reinforced the notion that ULP charges were forbidden.
There was no merit in the argument that the right to file ULPs was made clear by the language that "[n]othing shall be construed to require arbitration of any claim if an agreement to arbitrate such a claim is prohibited by law." The Board rejected this same argument in 2 Sisters Food Group, where the arbitration agreement similarly stated that it only covered claims "that may be lawfully [] resolve[d] by arbitration" (357 N.L.R.B. slip op. 168 (2011)). The Board explained that this language did not "specifically exclude NLRB proceedings, and 'most nonlawyer employees' would not be sufficiently familiar with the limitations the Act imposes on mandatory arbitration for the language to be effective."
In both D.R. Horton and Murphy Oil USA, Inc., , the Board found 8(a)(1) violations based on language in unlawful arbitration agreements compelling employees to waive their right to proceed collectively in all forums in pursuit of their employment claims (No. 12–60031, (5th Cir. Dec. 3, 2013); 361 N.L.R.B. slip op. 72 (2014)).
Although the Agreement, because it was silent on whether employees were prohibited from filing class or collective employment claims, was not facially unlawful as in D. R. Horton and Murphy Oil, there was sufficient evidence to establish that respondents applied the Agreement in violation of Section 8(a)(1) by filing their district court motion compelling employees to arbitrate their employment claims individually, therefore barring them from any other arbitral or judicial forum to litigate such claims on a class or collective basis.
While the employees have no Section 7 right to class certification, they do have a Section 7 right to act concertedly to seek class certification in pursuit of their employment claims "without employer coercion, restraint or interference," and to prove in district court that they meet the requirements for certification under Rule 23 of the Federal Rules of Civil Procedures and Section 216 of the FLSA.
As the Board made clear in D. R. Horton, the respondents could require that the employees arbitrate their employment claims and that "arbitral proceedings be conducted on an individual basis," but only "[s]o long as [they left] open a judicial forum for class and collective claims . . . ." The respondents however applied the Agreement to require the employees to resolve all employment claims through individual arbitration, therefore compelling them to waive their Section 7 right to collectively pursue litigation of their employment claims in all forums. By enforcing the Agreement in district court when the applicants filed their collective claims against the respondents under the FLSA, the respondents maintained and enforced the Agreement in violation of Section 8(a)(1).

Member Johnson dissented, concluding that because the Agreement, unlike in Murphy Oil, did not contain an unlawful waiver, and because the Board had not previously ruled that the enforcement of such an arbitration agreement is unlawful:

The illegal objective exception of respondents' First Amendment right under Bill Johnson's Restaurants v. NLRB, to petition the government for redress of grievances, does not apply (461 U.S. 731 (1983)).
The Section 8(a)(1) enforcement violation cannot be found.

The majority disagreed, contending that:

Application of the illegal objective exception under Bill Johnson's is not confined to cases where the Board has previously found a violation based on the same conduct.
The Board held in Teamsters Local 776 (Rite Aid Corp.) that if a lawsuit "is aimed at achieving a result that is incompatible with the Board's [prior] ruling, the lawsuit falls within the 'illegal objective' exception to Bill Johnson's" (305 N.L.R.B. 832, 835 n. 7 (1991)).

Practical Implications

In Countrywide Fin. Corp., the Board takes its position regarding mandatory arbitration agreements containing a waiver of collective or class action a step further. According to the Board, even an agreement that is silent regarding whether employes are prohibited from filing class or collective action violates the NLRA if the employer enforces the agreement in a way that restricts employees' right to concerted activity (here, by filing in district court a motion to compel the individual arbitration of the employees' claims). In light of the Board's decision, employers must continue to weigh the costs and benefits not only of requiring employees who are covered by the NLRA to enter arbitration agreements that include class action waivers, but also of filing a motion to compel individual arbitration of employees' claims.

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.)

Employer Committed ULP By Enforcing Facially Valid Arbitration Agreement to Prevent Class and Collective Actions: NLRB | Practical Law