NLRB Judge Finds Class Waiver Provision in Mandatory Arbitration Agreement Violates NLRA

Last week, a National Labor Relations Board Administrative Law Judge (the “ALJ”) found that a Missouri cellphone retailer violated the National Labor Relations Act (the “NLRA”) by requiring, as a condition of employment, its sales representative employees to enter into arbitration agreements mandating that all employment disputes be subject to individual arbitration. In doing so, the ALJ rejected the employer’s argument that the Supreme Court’s recent decision in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), supported enforcement of the arbitration agreement. In American Express Co., the Court held that class action waivers in arbitration agreements are enforceable under the Federal Arbitration Act (“FAA”), even when the plaintiff’s cost of individually arbitrating a federal statutory claim is prohibitively expensive.

In Cellular Sales of Missouri, LLC, Case No. 14-CA-094714, the ALJ ruled against Cellular Sales and held the provision at issue violated Section 7 of the NLRA, stating that she was bound by the Board’s precedent in D.R. Horton, 357 NLRB No. 184 (Jan. 3, 2013). In D.R. Horton, the Board found that an arbitration provision that required employees, as a condition of their employment, to agree that they would not pursue class or collective litigation of claims in any forum, arbitral or judicial, violated Section 7 of the NLRA, which protects employee concerted activity. Moreover, the ALJ found that the Supreme Court’s decision in American Express Co. did not expressly overrule D.R. Horton. In distinguishing the case at issue and D.R. Horton from American Express Co., the ALJ noted that American Express Co. involved a class action wavier provision in an antitrust context (not an employment context) and that the employees in American Express Co., were alleging that the cost of pursuing their claims individually would be prohibitive (not that they were precluded from pursuing their claims).

The ALJ’s decision, however, might not be a good indication of the ability of employees to void class action waivers contained in arbitration agreements going forward. The Board’s decision in D.R. Horton has been heavily criticized in federal courts and at lease two federal appellate courts have concluded that American Express Co. applies to class action waivers in arbitration agreements within the employment context. See Richards v. Ernst & Young LLP, No. 11-17530 (9th Cir. August 21, 2013); Sutherland v. Ernst & Young LLP, No. 12-304-cv (2nd Cir. August 9, 2013).

That being said, as long as D.R. Horton remains “good law,” the Board and its ALJs will likely continue to rely upon it to invalidate class waivers in arbitration agreements, which will further underscore the divergence between decisions from the Board and federal courts regarding the enforceability of class waivers in arbitration agreements. Employers who require such waivers will run a risk that they will become subject to an unfair labor practice charge brought before the Board.

If you have any questions regarding the impact of the Cellular Sales decision or arbitration agreements generally, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.