Class Dismissed Again: Fifth Circuit Denies NLRB’s Second Attempt to Ban Class Action Waivers

• Now the Fifth, Eighth, Ninth, and Eleventh Circuits have all rejected the NLRB’s position
• With Murphy Oil, the NLRB may be left with no choice but to seek review from the Supreme Court

The Board’s Decision in Murphy Oil

In the Board case, a binding arbitration agreement had been provided to Sheila Hobson, an employee of Murphy Oil USA, as a condition of her employment at the company’s Calera, Alabama facility in 2008. The company operates more than 1,000 gas stations in 21 states. In 2010, Hobson filed a collective action in the U.S. District Court for the Northern District of Alabama, alleging violations of the Fair Labor Standards Act. Murphy Oil filed a motion to compel arbitration, seeking to force Hobson and others similarly situated to arbitrate their claims on an individual basis rather than in a collective lawsuit. In response, Hobson filed an unfair labor practice charge with the NLRB and the Regional Director issued a complaint against Murphy Oil, alleging that the arbitration agreement signed by Hobson and others violated Section 8(a)(1) of the National Labor Relations Act (NLRA) insofar as it barred employees from litigating their employment related claims in concert. The district court granted Murphy Oil’s motion to compel individual arbitration, staying its decision while the NLRB charge made its way to the Board.

On October 28, 2014, by a 3-2 vote, the Board held that the arbitration clause violated Hobson’s Section 7 rights to engage in protected concerted activity. The majority of the Board dismissed most of the contrary authority as not being thorough enough — discrediting the Second and Eighth Circuit’s decisions for their “abbreviated” analysis, and refusing to engage with the California Supreme Court’s more detailed discussion (or that of any of the federal district courts to consider the issue) because those courts don’t typically exercise direct review over Board decisions. As for the Fifth Circuit’s decision in D.R. Horton directly reversing the Board on the exact same question, the majority in Murphy Oil complained that the Court gave “too little weight to [Board] policy,” and that “[t]he costs to Federal labor policy imposed by the Fifth Circuit’s decision would be very high.” Thus, the Board held that arbitration agreements limiting class or collective action violates Section 8(a)(1) of the Act.  Murphy Oil appealed the Board’s decision to the Fifth Circuit. 

The Fifth Circuit’s Reversal

Murphy Oil based its appeal on the Fifth Circuit interpretation of the law in D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344 (5th Cir. 2013), arguing that established precedent dictates that employers can limit employees’ rights to litigate collectively against an employer and that doing so does not violate the NLRA.

In January 2012, the Board decided arbitration clauses in employment contracts that require individual arbitration, rather than class-wide or collective actions, violate Section 8(a)(1) of the Act. D.R. Horton Inc., 357 NLRB No. 184 (Jan. 3, 2012). This case immediately became a labor law lightning rod — garnering criticism on a number of grounds, including the claim that it could not be reconciled with the Supreme Court’s decisions upholding bans on class arbitration, especially AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011), Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), and Gilmer v. Intertate/Johnson Lane Corp., 500 U.S. 20 (1991).  On appeal, the Fifth Circuit overruled the NLRB’s D.R. Horton decision, holding that it is lawful for an employer and an employee to enter into an agreement to arbitrate employment-related claims — and to do so only on an individual basis, lawfully precluding class-wide and collective actions brought on behalf of employees. The Fifth Circuit held that the NLRA does not give employees a substantive right to pursue collective or class actions, and that employees could therefore consent by contract to forfeit such remedies without running afoul of the Act.

Relying primarily on D.R. Horton, the Fifth Circuit in Murphy Oil  reversed the Board’s decision.  The Court held: “Murphy Oil committed no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing the arbitration agreements at issue here.” It went on to observe that “Reading the Murphy Oil contract as a whole, it would be unreasonable for an employee to construe the revised arbitration agreement as prohibiting the filing of Board charges when the agreement says the opposite.” The Fifth Circuit did not go so far as to sanction the Board, as Murphy Oil had requested, for finding that the arbitration agreement violated Section 8(a)(1) of the Act. 

Conclusion

It will be very interesting to see what the NLRB does next.  As we have discussed previously, every court that has examined and ruled on this issue (the Fifth, Eighth, Ninth, and Eleventh Circuits) have rejected the NLRB’s position on waivers of class and collective action procedures in arbitration agreements, but the Board and Administrative Law Judges have taken a contrary position. The NLRB has, to date, refused to appeal any of these decisions to the Supreme Court, leaving the area of law unsettled. With the Fifth Circuit’s decision in Murphy Oil, however, the NLRB may be left with no choice but to seek review from the Supreme Court.