Sixth Circuit Adopts NLRB’s D.R. Horton Rule and Deepens Circuit Split on Class Action Waivers

The Sixth Circuit Court of Appeals—apparently unable to wait a few months for the Supreme Court of the United States to rule on the issue—has now cast its lot with the National Labor Relations Board (NLRB) and the Seventh and Ninth Circuits in finding class action waivers in employment arbitration agreements unlawful under the National Labor Relations Act (NLRA).

As we recently noted, this very question is pending before the Supreme Court, where briefing is under way in three consolidated cases: NLRB v. Murphy Oil USA, Inc., Epic Systems Corp. v. Lewis, and Ernst & Young LLP v. Morris. The cases will be argued in the fall, with a decision expected in late 2017 or in early 2018.

The Sixth Circuit’s new decision in NLRB v. Alternative Entertainment, Inc. deepens an already significant circuit split. On the other side of the divide, the Second, Fifth, and Eighth Circuits have all rejected the NLRB’s theory—first announced in D.R. Horton in January of 2012—that employment arbitration agreements that waive class and collective procedures are unlawful. The NLRB contends such waivers infringe on employees’ right under Section 7 of the NLRA to engage in concerted activity for their mutual aid or protection. The Second, Fifth, and Eighth Circuits, along with scores of district and state courts over the past five years, have held the Federal Arbitration Act (FAA) mandates individual arbitration agreements be enforced according to their terms irrespective of the Board’s construction of the NLRA.

By this point, the arguments on both sides of the issue are pretty well-defined, and the Sixth Circuit’s majority opinion adds little, if anything new to the debate. The opinion tracks the reasoning laid out by the Seventh and Ninth Circuits in their decisions last year following the NLRB’s D.R. Horton holding.

In NLRB v. Alternative Entertainment, Inc., Judge Sutton dissented in relevant part, providing a cogent critique of the NLRB’s and the majority’s rationales. Perhaps most interestingly, Judge Sutton pointedly criticized the Board’s conflating employees’ engaging in concerted legal activity with their invoking class action procedures. He noted the “key question, which the Board and the majority do not confront, is what makes such a lawsuit ‘concerted.’” Although the “Board assumes that, when a court or arbitrator consolidates employees’ claims through a class action or joinder, the employees litigate concertedly,” in reality, “the ‘concertedness’ of litigation does not turn on the particular procedural form that litigation takes.” Rather, “[a]n activity is ‘concerted’ as long as workers mutually plan and support it.” He concluded:

Whether a group of employees brings a class action, joint claims, separate claims, or whether the group supports a single-plaintiff suit, their legal action is protected if they are substantively cooperating in the litigation campaign—say by pooling money, coordinating the timing of their claims, or sharing attorneys and legal strategy. These are the sort of collaborative activities—which employees can engage in of their own accord and not at the leave of a judge—that Section 7 protects.

Judge Sutton’s reasoning is persuasive. But perhaps we’re partial because it is in line with arguments we made to the Fifth Circuit when we successfully represented D.R. Horton in challenging the NLRB’s original decision banning class action waivers. There we argued the NLRB failed to show individual arbitration agreements bar employees from engaging in concerted activity in pursuing legal claims. We pointed out:

[An individual arbitration agreement] allows employees to work together in asserting their common legal rights by pooling their finances, negotiating as a group, sharing information, and seeking safety in numbers.  In addition, [an individual arbitration agreement] permits employees to solicit other employees to assert the same alleged legal rights, act in concert to initiate multiple individual arbitrations alleging the same legal claims, and coordinate the litigation of those claims by obtaining common representation, jointly investigating their claims, and developing common legal theories and strategies.  . . .  In short, [an individual arbitration agreement] permits employees to do everything they can to lend one another “mutual aid and protection” in asserting their alleged legal rights against their employer.   

Will such reasoning be persuasive to the Supreme Court? Stay tuned. We should know within the next six months or so.

Christopher C. Murray (Indianapolis), Brian E. Hayes (Washington, D.C.), and Ron Chapman, Jr. (Dallas) are presently preparing an amicus brief on behalf of several trade organizations to be filed in the Supreme Court’s pending class action waiver cases.