D.R. Horton Hears a Who - American Bar .D.R. Horton Hears a Who: Section 7 Prohibits Mandatory Waiver

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  • D.R. Horton Hears a Who:

    Section 7 Prohibits Mandatory Waiver of Employees Right to Pursue Concerted Legal Claims

    Presented to the Midwinter Meeting of the American Bar Association Section of Labor and Employment Law

    Committee on the Development of the Law Under the NLRA

    Carlsbad, California, February 25, 2013

    N. Elizabeth ReynoldsAllison, Slutsky & Kennedy, P.C.230 W. Monroe Street, Suite 2600Chicago, Illinois 60606(312) 364-9400reynolds@ask-attorneys.com

  • TABLE OF CONTENTS

    Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

    I. The Boards Decision in D.R. Horton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

    A. The Charging Partys Demand for Collective Arbitration . . . . . . . . . . . . . 2

    B. The Boards Analysis Under the NLRA and Norris-LaGuardia Act . . . . . 2

    1. Section 7 Establishes a Fundamental Right to Bring Concerted Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

    2. Section 8(a)(1) and Norris-LaGuardia Prohibit AgreementsWaiving the Right to Collective Action . . . . . . . . . . . . . . . . . . . . . 4

    C. The Boards Analysis Under the Federal Arbitration Act . . . . . . . . . . . . . 5

    D. Limits of the Boards Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

    II. Can Horton Survive Judicial Review? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

    A. Hortons Fate in the Courts to Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

    B. The Issue Before the Fifth Circuit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

    III. Why the Reports of Hortons Death Are Greatly Exaggerated . . . . . . . . . . . . . . . 10

    A. The Agreement Impairs Employees Section 7 Rights. . . . . . . . . . . . . . 10

    B. There Is No Conflict Between the FAA and the Boards Ruling . . . . . . . 11

    1. The Savings Clause and the FAAs Preservationof Substantive Statutory Rights . . . . . . . . . . . . . . . . . . . . . . . . . 11

    2. The Supreme Courts Decision in Concepcion and Other Supreme Court Commentary on Class Arbitrations . . . . . 14

    IV. Will Bad Facts Make Bad Law? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

    Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

    Appendix A: Pending and Recent NLRB Cases Addressing Horton . . . . . . . . . . . . . 20

    Appendix B: Pending and Recent Court Cases Addressing Horton . . . . . . . . . . . . . . 21

  • [Horton said,] Dont give up! I believe in you all!A persons a person, no matter how small!And you very small persons will not have to dieIf you make yourselves heard! So come on, now, and TRY!

    The Mayor grabbed a tom-tom. He started to smack it.And, all over Who-ville, they whooped up a racket.They rattled tin kettles! They beat on brass pans,On garbage pail tops and old cranberry cans!They blew on bazookas and blasted great tootsOn clarinets, oom-pahs and boom-pahs and flutes!

    Great gusts of loud racket rang high through the air.They rattled and shook the whole sky! And the MayorCalled up through the howling mad hullabaloo:Hey, Horton! Hows this? Is our sound coming through?

    And Horton called back, I can hear you just fine. But the kangaroos ears arent as strong, quite, as mine.They dont hear a thing! Are you sure all your boysAre doing their best? Are they ALL making noise?

    Dr. Seuss, Horton Hears a Who! (Random House 1954) (emphasis in original)

    3

  • Introduction1

    The National Labor Relations Board (Pearce and Becker; Hayes recused)2 found

    that D.R. Horton, Inc. violated Section 8(a)(1) of the National Labor Relations Act (NLRA)

    by requiring employees to sign an agreement that bars joint, class, or collective

    employment-related claims in any forum -- arbitral or judicial.3 D.R. Horton, Inc., 357 NLRB

    No. 184 (Jan. 3, 2012). A petition for review is pending. (5th Cir. Case No. 12-60031).

    Horton, a home builder with operations in over twenty states, required all new and

    continuing employees to sign a Mutual Arbitration Agreement (the Agreement) as a

    condition of employment. The Agreement has two key components:

    (1) The employee waives the judicial forum and agrees to arbitrateall employment-related claims.

    (2) The arbitrator cannot consolidate claims, hear class or collectiveactions, or award relief to a group of employees.4

    As a result, employees cannot join together to bring a collective action in any forum.

    The first component of the Agreement mandatory arbitration is almost certainly

    enforceable under current law, as the Board recognized.5 What is at stake in the Fifth

    1 Ms. Reynolds wishes to thank Jason McGaughy, an associate with Allison, Slutsky& Kennedy, P.C., for his legal research assistance.

    2 Horton contends in its brief and supplemental filings with the Fifth Circuit that theBoard lacked a quorum because Member Beckers recess appointment was invalid under NoelCanning v. NLRB, 2013 WL 276024 (D.C. Cir. Jan. 25, 2013); the Board failed to delegate itsauthority to a three-member panel; and/or Member Beckers appointment expired before thedecision was issued on January 3, 2012. Those issues are beyond the scope of this paper.

    3 The Board also found a provision waiving the right to file a lawsuit or other civilproceeding relating to ... employment would cause employees to believe they could not filecharges with the Board, in violation of Section 8(a)(1). (Slip op. at 2 & n.2, 16-17.)

    4 The Agreement provides that the arbitrator may hear only Employees individualclaims, will not have the authority to consolidate the claims of other employees, and does nothave authority to fashion a proceeding as a class or collective action or to award relief to a groupor class of employees. (Slip op. at 1.)

    5 See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991); Horton, slip op.at 10 n.24 (employee can be required to arbitrate individual claims); but see id., slip op. at 10 n.23

    (continued...)

    1

  • Circuit, and ultimately the Supreme Court, is the second component: Can an employer

    require employees covered by the NLRA to waive their right to bring consolidated, class,

    collective and other joint claims?

    I. The Boards Decision in D.R. Horton, 357 NLRB No. 184 (2012)

    A. The Charging Partys Demand for Collective ArbitrationAlthough the Horton decision has been widely touted as an attack on arbitration

    agreements, the charging party did not challenge the mandatory arbitration component of

    the Agreement or seek to avoid arbitration. On the contrary, the charging party, a former

    Horton employee named Michael Cuda, demanded arbitration on behalf of a nationwide

    class,6 alleging that Horton was misclassifying superintendents as exempt from the Fair

    Labor Standards Act (FLSA). Horton claimed that Cudas notice of intent to arbitrate was

    invalid, based on the Agreements provision barring collective actions. Cuda responded

    by filing an unfair labor practice charge. (Slip op. at 15.)

    B. The Boards Analysis Under the NLRA and Norris-LaGuardia Act

    1. Section 7 Establishes a Fundamental Right to Bring Concerted Claims

    The Board began (slip op. at 2-3) with the proposition that employees have a

    substantive right under Section 7 of the National Labor Relations Act, 29 U.S.C. 157, to

    engage in collective legal action, because it is concerted activit[y] for the purpose

    of...mutual aid and protection. The Board cited the Supreme Courts statement in Eastex,

    Inc. v. NLRB, 437 U.S. 556, 566 (1978) a case involving concerted support for minimum

    wage legislation that Section 7 protects employees from retaliation by their employers

    when they seek to improve working conditions through resort to administrative and judicial

    forums. It then reviewed a series of Board decisions spanning six decades which

    5(...continued)(noting disagreement in some courts as to arbitrability of FLSA claims).

    6 The statute under which the charging party sought arbitration the FLSA providesfor opt-in collective actions, 29 U.S.C. 216(b), not Rule 23 opt-out class actions.

    2

  • consistently held that filing a collective action7 or class action8 under state or federal wage

    and hour laws is Section 7 protected activity, and that retaliating against employees who

    pursue such actions is an unfair labor practice. (Slip op. at 2.) Citing case law that has

    long held that concerted activity includes conduct by a single employee if he or she seek[s]

    to initiate or to induce or to prepare for group action, the Board specifically held that an

    individual who files a demand for class arbitration is engaged in concerted activity. (Slip

    op. at 3, quoting Meyers Industries, 281 NLRB 882, 887, affd, 835 F.2d 1481 (D.C. Cir.

    1987)).

    To explain how the collective assertion of individual legal rights implicates Section

    7, the Board quoted the Ninth Circuits decision in Salt River Valley Water Users

    Association v. NLRB, 206 F.2d 325 (9th Cir. 1953), in which an employee circulated a

    petition granting him power of attorney to pursue wage claims on behalf of coworkers:

    By soliciting signatures ... [the employee] was seeking to obtain suchsolidarity among the [workers] as would enable group pressure upon the[employer] in regard to possible negotiation and adjustment of the [workers]claims. If suit wer