Sixth Circuit Sides with Seventh, Ninth Circuits on Issue of Class Waivers Included in an Employer’s Arbitration Agreement

The United States Court of Appeals for the Sixth Circuit has ruled that an employer may not prohibit employees from pursuing collective action litigation or arbitration for work-related claims.  In NLRB v. Alternative Entertainment, Inc., No. 16-1385 (6^th Cir., May 26, 2017), a field technician, DeCommer, signed an arbitration agreement when he began working for Alternative Entertainment, Inc. (“AEI”).  The agreement required AEI employees to submit all claims against the company to binding arbitration.  It also prohibited workers from engaging in collective action.  In addition, the company’s employee handbook prohibited AEI workers from discussing matters such as compensation with one another.

During the course of DeCommer’s employment, AEI made several changes to the compensation structure used to pay field technicians.  After DeCommer voiced his concerns over the latest round of changes to the compensation structure, he was terminated by AEI.  In response to his termination, DeCommer filed charges with the National Labor Relations Board (“NLRB”).

The NLRB determined that AEI violated the National Labor Relations Act (“NLRA”):

(1) By (1) prohibiting James DeCommer from discussing his concerns over changes in compensation with coworkers; (2) implementing rules prohibiting unauthorized disclosure of employee compensation and salary information; and (3) compelling employees, as a condition of employment, to sign arbitration agreements waiving their right to pursue class or collective actions in all forums, arbitral and judicial, the Respondent has violated Section 8(a)(1) of the Act. . . .

(2) By discharging James DeCommer for engaging in protected activity, including discussing his concerns about salary, wages, or compensation structures with his coworkers and bringing complaints about those issues to management, the Respondent has violated Section 8(a)(1) of the Act.

Next, the NLRB sought enforcement of its Decision and Order with the nation’s Sixth Circuit.  In a 2-1 opinion, the federal court declined to side with the Fifth Circuit’s decision in D.R. Horton which held “employers may require employees to agree to a mandatory arbitration provision requiring individual arbitration of employment-related claims.”  According to the court:

Ultimately, we conclude that the NLRA is unambiguous and that the statute itself makes clear that the right to concerted activity is a substantive right. But if the NLRA is ambiguous about whether the right to concerted legal activity is a substantive right, at the very least the NLRB’s determination that the right is substantive is a permissible construction of the NLRA entitled to Chevron deference. That the NLRB is not due Chevron deference as to interpretations of the FAA is irrelevant. Whether the right to engage in concerted action—and concerted legal action—is a substantive right is solely an interpretation of the NLRA. Cf. Note, Deference and the Federal Arbitration Act: The NLRB’s Determination of Substantive Statutory Rights, 128 HARV. L. REV. 907, 919 (2015).

Therefore, we disagree with the Fifth Circuit’s holding that employers may require employees to agree to a mandatory arbitration provision requiring individual arbitration of employment-related claims. Mandatory arbitration provisions that permit only individual arbitration of employment-related claims are illegal pursuant to the NLRA and unenforceable pursuant to the FAA’s saving clause.

In addition, the Sixth Circuit disagreed with AEI’s claim that the NLRB’s decision must be overturned based on United States Supreme Court precedent.  The court stated:

Although Concepcion makes clear that it is “beyond dispute that the FAA was designed to promote arbitration” and embodies a “national policy favoring arbitration,” Concepcion does not hold that the FAA requires enforcement of arbitration provisions in all circumstances. Concepcion, 563 U.S. at 345–46. The text of the FAA’s saving clause precludes such a holding, because—as Congress established—an arbitration provision that runs afoul of any “grounds as exist at law or in equity for the revocation of any contract” is unenforceable. 9 U.S.C. § 2.

Italian Colors and Gilmer are similarly distinguishable from this case. In Italian Colors, merchants who accept American Express cards sued American Express for antitrust violations and “argue[d] that requiring them to litigate their claims individually—as they contracted to do—would contravene the policies of the antitrust laws.” Italian Colors, 133 S. Ct. at 2309. The Supreme Court held that the arbitration provision was enforceable because “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” Id. Because it addressed a contract between companies and an alleged tension between antitrust laws and the FAA, Italian Colors does not speak to the case before us, which is a labor-law case involving a substantive right, rather than a procedural vehicle to vindicate a right. Although there is no guarantee of an affordable procedural path to the vindication of antitrust claims, the NLRA is an explicit congressional guarantee of employees’ right to engage in concerted activity, 29 U.S.C. § 157, including collective legal action, Eastex, 437 U.S. at 565–66; Brady, 644 F.3d at 673; SolarCity Corp., 2015 WL 9315535, at *2.

Like Italian Colors, Gilmer also did not involve an arbitration provision purporting to undermine employees’ statutory right to engage in collective action. Gilmer sued his employer under the Age Discrimination in Employment Act of 1967 (ADEA), 29 U.S.C. § 621 et seq., and argued that the compulsory arbitration provision in his securities registration application was invalid because “compulsory arbitration of ADEA claims pursuant to arbitration agreements would be inconsistent with the statutory framework and purposes of the ADEA.” Gilmer, 500 U.S. at 27. The Court disagreed, and ultimately concluded that there was no inconsistency between mandatory arbitration and vindication of the plaintiff’s rights under the ADEA. Id. Here, in contrast, there is a conflict between the NLRA’s explicit guarantee of employees’ right to concerted activity and an arbitration provision that explicitly prohibits any collective legal action. Arbitration provisions that are illegal under the explicit and generally applicable terms of a federal statute are distinct from arbitration provisions that may be in tension with the underlying policy of a federal statute. Explicitly illegal arbitration provisions trigger the FAA’s saving clause. “[A]rbitration agreements [are] as enforceable as other contracts, but not more so.” Prima Paint Corp., 388 U.S. at 404 n.12 (1967).

Ultimately, the Sixth Circuit Court of Appeals joined “the Seventh and Ninth Circuits in holding that an arbitration provision requiring employees covered by the NLRA individually to arbitrate all employment-related claims is not enforceable,” because such an arbitration “provision violates the NLRA’s guarantee of the right to collective action and, because it violates the NLRA, falls within the FAA’s saving clause.”

In January, the United States Supreme Court agreed to consider the legality of collective action waivers included in an employer’s arbitration agreement due to a circuit split on the issue.  At this time, oral argument before the nation’s high court has not yet been scheduled.  The parties currently have until August 9, 2017 to file response briefs on the merits.

Stay tuned to Disputing for further updates on this interesting issue!

Photo credit: sonicimac via Foter.com / CC BY