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 Board’s Decision in D.R. Horton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

A. The Charging Party’s Demand for Collective Arbitration . . . . . . . . . . . . . 2

B. The Board’s 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 Board’s Analysis Under the Federal Arbitration Act . . . . . . . . . . . . . 5

D. Limits of the Board’s Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

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

A. Horton’s Fate in the Courts to Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

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

III. Why the Reports of Horton’s Death Are Greatly Exaggerated . . . . . . . . . . . . . . . 10

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

B. There Is No Conflict Between the FAA and the Board’s Ruling . . . . . . . 11

1. The Savings Clause and the FAA’s Preservationof Substantive Statutory Rights . . . . . . . . . . . . . . . . . . . . . . . . . 11

2. The Supreme Court’s 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,] “Don’t give up! I believe in you all!A person’s 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! How’s this? Is our sound coming through?”

And Horton called back, “I can hear you just fine. But the kangaroos’ ears aren’t as strong, quite, as mine.They don’t 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 Becker’s 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 Becker’s 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 Employee’s 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 Board’s Decision in D.R. Horton, 357 NLRB No. 184 (2012)

A. The Charging Party’s Demand for Collective Arbitration

Although 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 Cuda’s notice of intent to arbitrate was

invalid, based on the Agreement’s provision barring collective actions. Cuda responded

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

B. The Board’s 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 Court’s 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, aff’d, 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 Circuit’s 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 were filed, such solidarity might enable more effectivefinancing of the expenses involved. Thus, in a real sense, circulation of thepetition was for ‘mutual aid and protection.’

Salt River Valley, 206 F.2d at 328 (quoted in D.R. Horton, slip op. at 2 n.3). Collective legal

actions help level to some degree “[t]he inequality of bargaining power between employees

... and employers” to which the National Labor Relations Act was addressed (Slip op. at 3,

quoting 29 U.S.C. § 151). The Board concluded that “[t]hese forms of collective efforts to

redress workplace wrongs ... are at the core of what Congress intended to protect by

adopting the broad language of Section 7.” (Slip op. at 3.)

7 Spandsco Oil & Royalty Co., 42 NLRB 942, 949 (1942); Salt River Valley WaterUsers Association, 99 NLRB 849 (1952), enf’d in relevant part, 206 F.2d 325 (9th Cir. 1953); TrinityTrucking & Materials Co., 221 NLRB 364 (1975), enf’d mem., 567 F.2d 391 (7th Cir. 1977); Le MadriRestaurant, 331 NLRB 269, 275 (2000).

8 Harco Trucking, LLC, 344 NLRB 478, 481 (2005); United Parcel Service, 252 NLRB1015 (1980), enf’d, 677 F.2d 421 (6th Cir. 1982).

3

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

Employers’ rules that explicitly restrict Section 7 protected activities generally violate

NLRA Section 8(a)(1), 29 U.S.C. § 158(a)(1). Lutheran Heritage Village-Livonia, 343 NLRB

646 (2004). Based on the Section 7 analysis above, the Board readily concluded that

Horton’s Agreement prohibiting collective claims was such a rule. D.R. Horton, slip op. at

4.9

The Board ruled that Horton’s prohibition on collective claims was not saved by the

fact that it was an “agreement.” Id. at 4. On the contrary, “the prohibition of individual

agreements imposed on employees as a means of requiring that they waive their right to

engage in protected, concerted activity lies at the core of the prohibitions contained in

Section 8.” The Board relied on two Supreme Court decisions rejecting purported

agreements to waive rights under the Act: National Licorice Co. v. NLRB, 309 U.S. 350

(1940), which held that it was an unfair labor practice to coerce employees to sign an

agreement not to demand a union contract, and J.I. Case Co. v. NLRB, 321 U.S. 332

(1944), which held that individual employment contracts cannot limit the scope of the

employer’s duty to bargain collectively, because “[w]herever private contracts conflict with

[the Board’s] functions, they obviously must yield or the Act would be reduced to a futility.”

(Quoted in Horton, slip op. at 4-5.)

The Board cited J.H. Stone & Sons, 33 NLRB 1014 (1941), enf’d in relevant part,

125 F.2d 752 (7th Cir. 1942), involving individual employment contracts that provided for

arbitration of all disputes between the employee and the employer. The Board in J.H.

Stone held the contracts unlawful because “the employee is denied the right to act through

a representative and is compelled to pit his individual bargaining strength against the

superior bargaining power of the employer.” 33 NLRB at 1023 (quoted in Horton, slip op.

at 5.) The Seventh Circuit enforced the decision because the contract “‘obligated [the

9 The Board rejected as “clearly wrong” GC Memo 10-06, under which employerscould require a class-action waiver as long as the agreement assured employees of their right tochallenge the waiver and promised not to retaliate. The Board concluded that such an assurancewould be confusing, empty, or both. The Board found a threat of retaliation implicit in requiring awaiver, because employees who refuse to sign a mandatory waiver will be fired or not hired.

4

employee] to bargain individually’ and was a ‘restraint upon collective action.’” Horton, slip

op. at 5 (quoting J.H. Stone, 125 F.2d at 756).

The Board also found that the Agreement was unenforceable under the Norris-

LaGuardia Act, 29 U.S.C. § 101 et seq. The Board termed the Agreement a “‘yellow dog’-

like contract” (slip op. at 5) covered by Norris-LaGuardia Section 3's prohibition on federal

court enforcement of “any...undertaking or promise in conflict with the public policy declared

in section 2 of this Act.” 29 U.S.C. § 103. Section 2 in turn announces a policy that

employees “shall be free from the interference, restraint, or coercion of employers ... in

other concerted activities for the purpose of collective bargaining or other mutual aid or

protection,” 29 U.S.C. § 102. The Board also noted that Norris-LaGuardia specifically

addresses concerted activity in connection with legal claims: Section 4(d) bars injunctions

against “aiding any person participating or interested in any labor dispute[10] who ... is

prosecuting, any action or suit in any court.” 29 U.S.C. § 104(d). Thus, the Board

concluded, Horton’s Agreement prohibiting collective assertion of claims was contrary to

the public policy of the Norris-LaGuardia Act as well as NLRA Section 7.

C. The Board’s Analysis Under the Federal Arbitration Act

The Board concluded that its interpretation of the NLRA in this case does not conflict

with the text or the policies of the Federal Arbitration Act (“FAA”). “[W]hen two federal

statutes ‘are capable of co-existence,’ both should be given effect ‘absent a clearly

expressed congressional intention to the contrary.’” D.R. Horton, slip op. at 8 (quoting

Morton v. Mancari, 417 U.S. 535, 551 (1974)). Even if there were a conflict, the Board

ruled, the FAA would have to yield.

The Board articulated three reasons why its finding of an unfair labor practice in this

case is capable of co-existence with the FAA. All three are variations on the theme that

arbitration agreements are not above the law.

10 Section 13 of Norris-LaGuardia broadly defines “labor dispute” to include “anycontroversy concerning terms or conditions of employment.” 29 U.S.C. § 13(c).

5

First, the FAA’s purpose is to ensure that the courts do not treat agreements to

arbitrate less favorably than other contracts. Since all contracts “‘must yield’” “‘[w]herever

private contracts conflict with [the] functions’ of the National Labor Relations Act,” the

Horton Agreement is being treated no worse than any other contract. (Slip op. at 9 (quoting

J.I. Case Co. v. NLRB, 321 U.S. 332, 337 (1944))). An agreement that prohibited

employees from filing collective claims in court – without any mention of arbitration – would

violate Section 8(a)(1) for the same reasons as the Horton Agreement. (Slip op. at 9.)

Second, the Board reasoned, the Supreme Court made clear in cases such as

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), and 14 Penn Plaza LLC v.

Pyett, 556 U.S. 247, 129 S. Ct. 1456, 1464 n.5 (2009), that an arbitration agreement cannot

require a party to give up its substantive statutory rights. The substantive right at issue

here, the Board found, is the Section 7 right to engage in concerted activity, “the core

substantive right protected by the NLRA and ... the foundation on which the Act and

Federal labor policy rest.” (Slip op. at 10.) The Board cautioned that there is no

substantive right to actually achieve a particular procedural outcome such as class

certification. (Slip op. at 10.)

Third, Section 2 of the FAA provides that agreements to arbitrate are valid “save

upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C.

§ 2. As discussed above, the Supreme Court’s decisions in National Licorice and J.I. Case

invalidate private agreements that restrict employees’ NLRA rights. In addition, contracts

against public policy are unenforceable, including contracts that violate the NLRA. (Slip op.

at 11, citing Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 83-84 (1982) (illegality of hot cargo

clause is defense to contract enforcement)). The Board reasoned that the strong federal

policies protecting concerted activities and prohibiting “yellow dog” type contracts preclude

enforcement of the Horton Agreement. (Slip op. at 11.) The Board stated that “any

intrusion on the policies underlying the FAA is ... limited” because its ruling applies only to

employees covered by the NLRA, and because class actions in the employment context

are likely to be smaller and less cumbersome than the nationwide consumer classes that

the Supreme Court held incompatible with the FAA in AT&T Mobility v. Concepcion, 131

S. Ct. 1740 (2011). (Slip op. at 11-12.)

6

After concluding that there is no conflict between the NLRA and the FAA, the Board

went on to state that “even if there were a direct conflict, ... there are strong indications that

the FAA would have to yield.” (Slip op. at 12.) The Board relied on the Norris-LaGuardia

Act, which was passed seven years after the FAA and expressly repealed “[a]ll Acts and

parts of Acts in conflict with the provisions of this Act,” 29 U.S.C. § 115. Although the

NLRA lacks an express repealer provision, the Board relied on the general principle that

“the later enacted statute ... must be understood to have impliedly repealed inconsistent

provisions in the earlier enacted statute” (slip op. at 12 n.26, citing cases).11

D. Limits of the Board’s Holding

The Board emphasized that it was not mandating class arbitration. Such a mandate,

the Board recognized, would conflict with Stolt-Nielsen S.A. v AnimalFeeds Int’l Corp., 130

S. Ct. 1758, 1775-1776 (2010), which held that a party who has not agreed to arbitrate on

a class basis cannot be compelled to do so. The Board held only that employees may not

be required to waive their right to collective litigation in all forums. “Employers remain free

to insist that arbitral proceedings be conducted on an individual basis,” “[s]o long as the

employer leaves open a judicial forum for class and collective claims.” (Slip op. at 12,

emphasis in original.) Thus, if a court denies consolidation, joinder or class certification

11 The FAA was originally enacted in 1925, the Norris-LaGuardia Act in 1932, and theNLRA in 1937. (Slip op. at 8.) In its brief to the Fifth Circuit, Horton points out that the NLRA wasre-enacted on June 23, 1947 and the FAA was re-enacted five weeks later, on July 30, 1947, whileNorris-LaGuardia was never re-enacted. (Horton Brief filed May 31, 2012, at 35.) Neither re-enactment made any changes to the relevant provisions. Based on these dates, Horton argues that“of these three statutes, the FAA is the most recently re-enacted. If there is any ‘irreconcilableconflict’ among them, the FAA must prevail.” Id. Although this view finds some support in a casecited by Horton, Chicago & N. W. Ry. Co. v. United Transp. Union, 402 U.S. 570, 582 n.18 (1971)(stating in dicta that Railway Labor Act would prevail over Norris-LaGuardia based on re-enactmentof relevant section of RLA in 1934), the results are nothing short of nonsensical. According to thisapproach, from 1937 to 1947 the NLRA was the later-enacted statute and would have trumped theFAA in case of any irreconcilable conflict, but when Congress re-enacted both statutes with norelevant change a month apart in 1947, they were suddenly reversed and the FAA would now trumpthe NLRA. The prospect of such a result, in which the priority among statutes is arbitrarily flippedby the timing of the re-enactment process with no indication that Congress attached any importanceto the chronology, simply confirms “[t]he cardinal rule ... that repeals by implication are not favored”and that “effect should be given to both [statutes] if possible.” Posadas v. National City Bank, 296U.S. 497, 503 (1936).

7

based on generally applicable legal principles (not the purported waiver of concerted

claims), the remaining individual claim or claims will be subject to mandatory arbitration.

The Board was at pains to point out that – unlike the early twentieth-century judges

at whom the FAA was aimed – the Board has no “hostility or suspicion of arbitration,” and

indeed, routinely defers to arbitration. Horton’s unfair labor practice was not requiring an

agreement to arbitrate, but “the compelled waiver of the right to act collectively in any

forum, judicial or arbitral, in an effort to vindicate workplace rights.” (Slip op. at 13.)

II. Can Horton Survive Judicial Review?

A. Horton’s Fate in the Courts to Date

In the year since Horton was issued, the Eighth Circuit, the California Court of

Appeals, and a legion of district courts have rejected it as incompatible with Supreme Court

case law under the FAA, especially AT& T Mobility LLC v. Concepcion, 131 S. Ct. 1740

(2011). As of this writing, only one court, the Western District of Wisconsin, has embraced

Horton. (See overview of decisions in Appendix B, infra.) With so many obituaries already

published, it is easy to assume that Horton is a dead letter.

The obituaries have appeared, almost without exception, in rulings on motions to

compel arbitration. The plaintiff-employees in these cases filed complaints in court for class

actions or FLSA opt-in collective actions; the defendant-employers moved to compel

arbitration; and the plaintiffs invoked Horton to argue that arbitration should be denied

because their arbitration agreements included class or collective action waivers. In contrast

to Horton itself, none of these plaintiffs sought arbitration of their concerted claims, and

none appear to have filed an unfair labor practice charge. The courts’ decisions have for

the most part devoted minimal space to Horton and the National Labor Relations Act.

These courts’ approach is not surprising given the context in which they were

presented with Horton. When Horton is interposed as a defense to arbitration, naturally the

debate focuses on the employer’s ability to mandate arbitration and the enforceability of

arbitration agreements in general. The plaintiff whose goal is to remain in court is likely to

portray Horton as rejecting mandatory arbitration; the defendant will be glad to accept that

portrayal, because anti-arbitration decisions are clearly out of favor. No wonder, then, that

8

Horton has not gained a serious hearing from courts who see it as just the latest variation

on the oft-rejected unconscionability argument against arbitration agreements. And if that

were accurate, the obituaries for Horton would not be not premature.

B. The Issue Before the Fifth Circuit

The anti-arbitration caricature of Horton that has prevailed in disputes over motions

to compel arbitration, see supra Part II(A), is so inaccurate that one can hardly call it a

misreading – it seems more a result of failing to read Horton at all. The Board’s decision

emphasized that its “holding rests not on any conflict between an agreement to arbitrate

and the NLRA, but rather solely on the conflict between the compelled waiver of the right

to act collectively in any forum, judicial or arbitral ... and the NLRA.” (Slip op. at 13,

emphasis added.) The courts that summarily rejected Horton may have assumed that the

Board shares the typical plaintiffs’ attorney’s suspicion of arbitration, but we who practice

before the Board know better: this agency defers cases to arbitration so often that a new

verb had to be invented, “Collyerize,” to describe the process.

When the Fifth Circuit (and then, likely, the Supreme Court) rules on Horton, it will

not be looking at the caricature that was presented to other courts in the context of motions

to compel arbitration. There is no plaintiff here seeking to avoid arbitration – instead, there

is a charging party who demanded arbitration, but sought to involve other employees.

There is no dispute over the enforceability of the agreement to arbitrate. The dispute is

over the lawfulness of a separate component of the Horton Agreement which raises entirely

different legal issues: the ban on concerted claims. Much as Horton and its amici would

like to make this case a referendum on the enforceability of arbitration agreements – a

referendum whose outcome is predetermined by two decades of Supreme Court precedent

– the Fifth Circuit should and probably will realize that this case requires a more nuanced

analysis.

If the Horton Agreement merely required employees to agree not to bring collective,

class or joint claims – without any mention of arbitration – this case would be an easy win

for the Board. The Fifth Circuit would grant Chevron deference to the Board’s decades-

long interpretation of Section 7 as protecting concerted litigation activities, and uphold the

9

Board’s finding that employees cannot be required to waive Section 7 rights as a condition

of employment. Conversely, if the Horton Agreement merely required employees to

arbitrate all employment-related disputes – without any prohibition on collective, class or

joint claims – this would be an easy win for the Company under the FAA, and indeed, the

Board would never even have issued a complaint.

The Fifth Circuit must determine what happens when these two provisions – one

clearly lawful, the other clearly unlawful when standing alone – are combined in one

agreement which eliminates concerted claims in two steps (1. employees must arbitrate all

claims; 2. the arbitrator cannot hear collective claims). Is the ban on concerted claims a

valid subpart of the agreement to arbitrate, merely setting out procedures for arbitration?

Or does the ban on concerted claims retain its own separate identity as a type of yellow-

dog contract, which cannot be made lawful by inserting it into an arbitration agreement?

III. The Reports of Horton’s Death Are Greatly Exaggerated

A. The Agreement Impairs Employees’ Section 7 Rights

The Board’s ruling is on the strongest ground where it is entitled to Chevron

deference, interpreting the NLRA. The Supreme Court has stated that the right to engage

in concerted activity for mutual aid and protection pursuant to Section 7 is “fundamental,”

NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 33 (1937), and that “to delineate

precisely the boundaries of the ‘mutual aid or protection’ clause” is a “task ... for the Board

to perform in the first instance.” Eastex, Inc. v. NLRB, 437 U.S. 556, 568 (1978). The

Board’s position in Horton is supported by the consistency of its own rulings over the

decades – and court decisions enforcing them – which have uniformly construed Section

7 as protecting the right of employees to engage in concerted litigation or otherwise

cooperate in asserting legal claims for their mutual aid and protection.12 Like the individual

employment contracts common in the 1930s that attempted to squelch employees’ right to

bargain collectively or strike by mandating arbitration of all employment disputes, here too,

12 In addition to the examples cited by the Board and ALJ (Slip Op. at 2, 16), there aremany more in the amicus brief of NELA at pp. 4-5, available on the Fifth Circuit website.

10

“the clause was agreed to as a result of individual action and thereafter imposed a restraint

upon collective action.” NLRB v. Stone, 125 F2d 752, 756 (7th Cir. 1942) (enforcing in

relevant part J.H. Stone & Sons, 33 NLRB 1014 (1941)).

Even though the Agreement’s ban on collective claims is phrased in part as a limit

on the arbitrator’s authority rather than an express restriction on employees’ conduct, it is

nevertheless an unlawful work rule under the test of Lutheran Heritage Village-Livonia, 343

NLRB 646 (2004). First, employees would reasonably understand the Agreement to prohibit

them from pursuing their claims collectively; second, Horton has in fact applied the

Agreement to restrict the exercise of Section 7 rights by invoking it to bar class arbitration.

See Lutheran Heritage, 343 NLRB at 646-647.

Accordingly, there is no serious basis under the NLRA to deny enforcement to the

Board’s decision. The only question is whether the FAA changes that outcome.

B. There Is No Conflict Between the FAA and the Board’s Ruling

1. The Savings Clause and the FAA’s Preservationof Substantive Statutory Rights

One might fairly ask why the FAA is relevant to Horton at all, since the case did not

involve an action to enforce an arbitration agreement. As the AFL-CIO and SEIU pointed

out in their joint amicus brief to the Fifth Circuit, Horton violated Section 8(a)(1) when it

made execution of the Agreement a condition of employment – the “sign-it-or-quit directive”

– and therefore, the unfair labor practice occurred “even before an agreement exist[ed] to

which the FAA’s implied policies might attach.” (SEIU and AFL-CIO Brief at 23, 22.) The

employer’s theory, however, is that the directive to sign the Agreement cannot be unlawful

because the Agreement is enforceable under the FAA.

When the employer resorts to the FAA argument, it is no longer claiming that its

conduct was lawful under the NLRA taken on its own terms. If the Horton Agreement did

not violate the NLRA, there would be no basis for any unfair labor practice finding and no

reason to consider the interplay with external law such as the FAA. The employer’s

argument looks to the FAA to immunize it from otherwise certain liability under the NLRA

– to make an unlawful agreement lawful by inserting it into an arbitration agreement.

11

The principal obstacle to Horton’s argument is the savings clause in Section 2 of the

FAA, which recognizes an exception to the general enforceability of arbitration agreements

to the extent that any “grounds exist at law or in equity for the revocation of any contract.”

9 U.S.C. § 2. The FAA cannot render an otherwise unlawful contract provision enforceable,

because FAA Section 2 by its terms preserves all generally applicable defenses to contract

enforcement and recognizes that those defenses are equally applicable to arbitration

agreements.

The Supreme Court has specifically established that contracts which violate the

NLRA are unenforceable. Kaiser Steel Corp. v. Mullins, 455 U.S. 72 (1982). In Kaiser, the

Court held that illegality under Section 8(e)13 is a defense to a suit to enforce a contract,

because “The power of the federal courts to enforce the terms of private agreements is at

all times exercised subject to the restrictions and limitations of the public policy of the

United States as manifested in ... federal statutes ... Where the enforcement of private

agreements would be violative of that policy, it is the obligation of courts to refrain from

such exertions of judicial power.” Kaiser, 455 U.S. at 83-84 (quoting Hurd v. Hodge, 334

U.S. 24, 34-35 (1948)). The Court reasoned that, since “[t]he ‘touchstone’ and ‘central

theme’ of § 8(e) is the protection of neutral employers such as Kaiser,” id. at 84, courts

must entertain an illegality defense when it is “raised by a party which § 8(e) was designed

to protect” and “directed ... to the portion of the contract for which enforcement is sought.”

Id. at 86. Applying Kaiser’s reasoning here, the touchstone and central theme of Section

7 is the protection of employees through concerted activity, so the party whom Section 7

was meant to protect – the employee – may raise it as a defense to enforcement of a

contract provision that violates Section 7 rights. This defense of illegality is a generally

applicable ground for revocation of any contract, so FAA Section 2 permits its application

to the Horton Agreement.

The Supreme Court has repeatedly emphasized that “[b]y agreeing to arbitrate a

statutory claim, a party does not forgo the substantive rights afforded by the statute.”

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614, 628 (1985), quoted

13 Section 8(e) expressly provides that any contract containing a hot cargo clause “shallbe to such extent unenforceable and void.” 29 U.S.C. § 158(e).

12

in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991). The Court stated in

Mitsubishi that “in the event the choice-of-forum and choice-of-law clauses operated in

tandem as a prospective waiver of a party's right to pursue statutory remedies for antitrust

violations, we would have little hesitation in condemning the agreement as against public

policy.” 473 U.S. at 637 n.19. The amicus briefs of the AFL-CIO, SEIU and NELA in

support of the Board’s decision cite numerous circuit court decisions invalidating provisions

of arbitration agreements that deprive employees of substantive statutory rights.14

Horton and its amici would read these decisions narrowly to mean only that the

arbitration agreement does not waive substantive rights under the particular statute under

which the plaintiff brings a claim, such as the Fair Labor Standards Act in charging party

Michael Cuda’s case. That reading is not only nonsensical – why should the FAA preserve

rights under one statute but not another? – but also, as the amicus brief of Public Justice

and Public Citizen points out, it is contrary to Preston v. Ferrer, 552 U.S. 346 (2008), where

the Supreme Court indicated that an arbitration agreement does not waive the parties’

substantive rights under any law. In Preston, the plaintiff demanded arbitration to enforce

a contract, and the defendant argued that the contract was invalid under the California

Talent Agencies Act (TAA). The Supreme Court cited Mitsubishi for the proposition that

arbitration agreements do not waive statutory rights, and concluded, “So ... [the defendant]

relinquishes no substantive rights the TAA or other California law may accord him.”

The Board’s decision in Horton, then, finds support in both the text of the FAA’s

savings clause and the Supreme Court’s mantra that arbitration agreements leave

substantive statutory rights intact. The two clauses of the Horton Agreement, (1) agreeing

to arbitration and (2) precluding the arbitrator from hearing group claims, “operate[] in

tandem as a prospective waiver” of the employee’s Section 7 right, so the courts should

“have little hesitation in condemning the agreement as against public policy.” Mitsubishi,

473 U.S. at 637 n.19.

14 E.g., Nino v. Jewelry Exchange, 609 F.3d 191, 203 (3d Cir. 2010) (anti-fee-shiftingprovision inconsistent with Title VII); Ragone v. Atl. Video, 595 F.3d 115, 122-126 (2d Cir. 2010)(provision shortening Title VII statute of limitations); Morrison v. Circuit City Stores, Inc., 317 F.3d646, 670 (6th Cir. 2003) (damages caps inconsistent with Title VII).

13

2. The Supreme Court’s Decision in Concepcion and Other Supreme Court Commentary on Class Arbitrations

Horton’s brief to the Fifth Circuit relies heavily on the Supreme Court’s discussion

of class arbitration in AT& T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). In

Concepcion, the Court in a 5-to-4 decision held that the FAA preempts California’s judicially

created doctrine of unconscionability of class-action waivers in certain consumer contracts.

Reciting a litany of disadvantages of class proceedings, the Court pronounced that

“[r]equiring the availability of classwide arbitration interferes with fundamental attributes of

arbitration and thus creates a scheme inconsistent with the FAA” and that “class arbitration,

to the extent it is manufactured by [California case law] rather than consensual, is

inconsistent with the FAA.” Concepcion, 131 S. Ct. at 1748, 1751.15

The first response to any argument based on Concepcion is that it has no application

here because Horton is based on federal rather than state law, so there is no issue of

federal preemption. The Court defined the issue in Concepcion as “whether the FAA

prohibits States from conditioning the enforceability of certain arbitration agreements on the

availability of classwide arbitration procedures.” 131 S. Ct. at 1744. Where state law is

“inconsistent” with federal law, it is preempted under the Supremacy Clause. In case of

potential inconsistency between two federal statutes, however, the courts must determine

whether the two “are capable of co-existence,” and should give effect to both “absent a

clearly expressed congressional intention to the contrary.” Morton v. Mancari, 417 U.S.

535, 551 (1974), quoted in Horton (slip op. at 8). In short, Section 7 of the NLRA is on

equal footing with the FAA, which the California doctrine of unconscionability in Concepcion

was not.

Second, Concepcion did not implicate any statutory right to engage in class or other

concerted actions. The objection to class action waivers in Concepcion was judicially

created. This is distinguishable from Horton, where the NLRA expressly confers a

fundamental statutory right to engage in concerted activities (including concerted legal

15 As a factual matter, the notion that class proceedings are inconsistent with arbitrationis belied by the widespread and longstanding practice of class arbitrations. See Amicus Brief toFifth Circuit of SEIU and AFL-CIO (filed September 11, 2012) at 9, 11 nn. 3-4, 21 n.8.

14

claims). That brings into play Mitsubishi’s principle that arbitration agreements do not give

up a party’s substantive statutory rights – a principle that had no application in Concepcion.

Third, Concepcion dealt only with class arbitrations – not with the variety of other,

smaller and simpler concerted claims that the Horton Agreement also bars with its

provisions against “consolidat[ing] ... claims” and “award[ing] relief to a group.” (Horton,

slip op. at 1 (quoting the Agreement)). The two unique features of class proceedings that

Concepcion found were inconsistent with speedy and efficient arbitration – the class

certification process and the notice and opt-out procedures needed to protect absent class

members,16 131 S. Ct. at 1751 – are completely absent from an arbitration of consolidated

or joint claims, where multiple named employees bring claims together on their own behalf

and not in a representative capacity. Likewise, Concepcion’s concern for the excessive

risks of class arbitration with “tens of thousands of potential claimants,” where to go to

hearing is to “bet the company,” id. at 1752, does not apply to a joint arbitration by a

discrete group of named employees. Companies with collective bargaining agreements

routinely arbitrate group claims involving multiple bargaining unit members, without the

number of grievants becoming so great as to pose an “unacceptable” risk of “devastating

loss” (to quote the Supreme Court’s alarmist language, Concepcion, 131 S. Ct. at 1752).

Thus, Concepcion offers no basis at all to challenge Horton insofar as it relates to

waivers of joint and consolidated claims other than class or opt-in collective class actions.

With respect to class actions and FLSA opt-in collective actions, some of the procedural

concerns discussed in Concepcion may sometimes be present, but only to a limited degree,

because extremely large class actions are far rarer in employment cases than in consumer

cases. See, e.g., Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) (refusing to certify

nationwide class in Title VII case based on lack of commonality). Any such concerns must

be weighed against, and if at all possible accommodated to, the Congressional command

in Section 7 establishing employees’ right to engage in concerted activity. The Board

16 These or similar features also apply to FLSA opt-in collective actions. SeeEspenscheid v. DirectSatUSA, LLC, 688 F.3d 872, 877 (7th Cir. 2012) (class certification processand representative status); De Leon-Granados v. Eller & Sons Trees, Inc., 497 F.3d 1214, 1217(11th Cir. 2007) (notification process to potential opt-in plaintiffs).

15

reasonably reconciled the FAA and the NLRA by allowing Horton to mandate arbitration of

all individual claims and letting it choose where employees may pursue their concerted

claims, either in court or in arbitration.

Horton also relies on Stolt-Nielsen S.A. v. AnimalFeeds International Corp.,130 S.Ct.

1758 (2010), a case arising out of a motion to vacate an arbitration panel’s ruling ordering

class arbitration in an antitrust case. The Supreme Court held that “a party may not be

compelled under the FAA to submit to class arbitration unless there is a contractual basis

for concluding that the party agreed to do so.” 130 S. Ct. at 1775. Arbitration “is a matter

of consent,” and “parties may specify with whom they choose to arbitrate their disputes.”

Id. at 1773, 1774. Similar to Concepcion, supra, the Stolt-Nielsen decision lists certain

features of class arbitration that “change[] the nature of arbitration to such a degree that it

cannot be presumed the parties consented to it:” “absent parties” numbering in the

“hundreds or perhaps even thousands,” and the loss of “privacy and confidentiality.” Id. at

1775-1776. (Confidentiality provisions in arbitration agreements manifestly violate Section

8(a)(1), as an ALJ recently ruled in 24 Hour Fitness, discussed in Appendix A.)

The Board was well aware of Stolt-Nielsen and emphasized in Horton that “[w]e

need not and do not mandate class arbitration in order to protect employees’ rights under

the NLRA.” (Slip op. at 12, emphasis added.) Thus, Stolt-Nielsen provides no basis to

deny enforcement to Horton. It simply removes one of the options that would otherwise

have been present for dealing with unlawful class action waivers in arbitration agreements,

which would be to sever the waiver and enforce the arbitration agreement on a class basis.

The Board’s decision accommodates the employees’ Section 7 rights and the employer’s

right under Stolt-Nielsen to be free from compelled class arbitration, by allowing the

employer to choose whether to arbitrate all claims (including class claims) or arbitrate

individual claims while defending against class actions in court.

In CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), the Supreme Court did

not discuss class or other concerted arbitrations at all. The only waiver the Court discussed

in CompuCredit was waiver of a judicial forum, not waiver of collective actions. The

plaintiffs in CompuCredit were consumers seeking to bring a class action in court; the

defendant moved to compel arbitration. The plaintiffs argued that the federal Credit Repair

16

Organization Act (CROA) was intended to preclude arbitration agreements because the

CROA contained references to “class actions,” “court,” and “right to sue.” The Court

interpreted those terms, in the context in which they appeared in the CROA, as not showing

a congressional intent to prohibit arbitration. Because no party contends in Horton that the

NLRA precludes arbitration, CompuCredit is not on point. Rather, the relevant question in

Horton is whether the NLRA precludes a compelled waiver of the Section 7 right to

concerted activity. Congressional command on this issue is clear, under the long line of

cases cited in Part I(B)(1) and III(A), supra.

Finally, the tangential references to class and collective actions in Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), do not conflict in any way with Horton.

The plaintiff in Gilmer sought to litigate his individual age discrimination claim in court. He

did not seek to bring a joint, class, or other concerted claim, and never argued that his

Section 7 rights (or any other rights than those under the ADEA) were implicated. The

Supreme Court stated that “[i]t is also argued that arbitration procedures cannot adequately

further the purposes of the ADEA because they do not provide for broad equitable relief

and class actions,” but pointed out that the applicable New York Stock Exchange arbitration

rules “provide for collective proceedings” and “do not restrict the types of relief an arbitrator

may award.” 500 U.S. at 32. The Court went on to state in dicta that even if the arbitration

somehow could not proceed on a class basis – which it apparently could under the NYSE

rules – the ADEA’s reference to collective actions was not meant to bar “individual attempts

at conciliation.” Id. Thus, at most, Gilmer suggested in dicta that the ADEA would not

preclude a class action waiver. It did not address whether the NLRA, with its entirely

different statutory purpose and language, prohibits employers from obtaining such a waiver.

Thus, the claimed relevance of these Supreme Court decisions to Horton is illusory.

The FAA decisions arose in entirely different contexts and did not involve the NLRA or any

other statute elevating concerted legal action to a fundamental right. Moreover, the

passages cited by the employer regarding the supposed ills of class arbitration cannot

possibly justify a sweeping prohibition on all joint or consolidated arbitration of more than

one employee’s claims – proceedings that share none of the purported problems of class

arbitration, yet are completely banned by the Horton Agreement.

17

IV. Will Bad Facts Make Bad Law?

The Board has a strong basis to hope that the courts will enforce its ruling.

Nevertheless, one cannot help but wonder if the Horton decision would face smoother

sailing on review if it had arisen from different facts.

The individual who filed the charge in Horton, Michael Cuda, was an atypical

charging party in many ways. Cuda went to the Board because Horton rejected his

demand for class arbitration, not because it took action against him in the workplace.

Indeed, he left Horton’s employment approximately two years before he demanded

arbitration and then filed the charge. (Slip op. at 1.) (....Was he still a statutory employee

under Section 2(3)?) His position with Horton was “superintendent.” (Slip op. at 1.)

(....Was he a statutory supervisor? The record offers no information.)

The ALJ’s decision hints at possible cooperation between Cuda and other Horton

employees. The ALJ mentioned that Cuda’s attorney sent Horton three demand letters

within eight days: one on behalf of Cuda and a class of superintendents, one on behalf of

five other named employees, and one on behalf of employee Mario Cabrera and a class

of superintendents. (Slip op. at 15). The details of any concerted activity among the

various FLSA plaintiffs, however, either were not developed in the record or were not

deemed significant enough for the ALJ and the Board to include in their decisions. The

Board instead relied on the principle that conduct by a single employee seeking to induce

group action is “concerted activity” under Section 7. (Slip op. at 3, citing Meyers Industries,

281 NLRB 882, 887 (1986), aff’d, 835 F.2d 1481 (D.C. Cir. 1987).) The Board’s description

of the facts – which omits the ALJ’s mention of the other two demand letters – leaves the

impression that Cuda acted alone.

Logically and legally, this should not affect the analysis. The Board’s unfair labor

practice finding was based on Horton’s maintenance of the Agreement itself, not on any

facts specific to the charging party’s putative class arbitration. The Board’s remedy was

to rescind the Agreement generally, not to take any particular action with regard to Cuda’s

FLSA claim. Any person can file a charge with the Board – there is no requirement of

standing, see, e.g., Dish Network Corp., 358 NLRB No. 29 (2012) – so the charging party’s

18

identity and facts are immaterial as long as the record shows that someone’s Section 7

rights were violated.

The reality, however, is that this is a case without a compelling poster child. To the

extent that the courts focus on Cuda, the Board’s decision creates the impression of a long-

departed employee with no current connection to the workplace, acting alone, whose only

concerted activity was independently demanding a class arbitration. (This impression may

be inaccurate, given his counsel’s two other demand letters on behalf of Horton employees,

but they are mentioned only in the ALJ’s decision.) To the extent that the courts look

broadly at Horton’s employees in general, the case is reduced to a handbook charge with

no human face – no specific employees who were forced to choose between waiving their

rights and losing their job, or whose efforts at group legal action with co-workers were

thwarted by the Agreement. As a legal matter, such individual experiences are beside the

point, because all of Horton’s employees were required to sign the Agreement as a

condition of obtaining or keeping their jobs, and the Agreement barred all collective legal

actions. But some concrete examples would certainly give the Board a more appealing

story to tell.

Horton and its amici portray this case as revolving entirely around class actions and

FLSA claims. (The one fact that they downplay is that Cuda requested arbitration.) When

the Fifth Circuit considers how to read the NLRA and the FAA together, it must recognize

that the Horton Agreement bans much more than class actions.

Conclusion

If the Fifth Circuit looks carefully at Horton’s merits; avoids a sloppy reliance on

inapposite cases such as Concepcion; and disregards the outcry that will follow from the

business community if Horton is enforced, it should conclude that the Board interpreted the

NLRA consistent with seventy years of precedent and did not encroach on the FAA.

19

Appendix A:Pending and Recent NLRB Cases Addressing Horton

24 Hour Fitness USA, Inc., NLRB Case No. 20-CA-035419JD(SF)-51-12 (Nov. 6, 2012) (exceptions pending)

The Board is currently considering exceptions to ALJ William L. Schmidt’s decisionin 24 Hour Fitness USA, Inc., which held that Horton applies even when employees arepermitted to opt out of the class action waiver, at least on the facts of that case.

In 24 Hour Fitness, the employer maintained in its employee handbook an arbitrationpolicy providing for arbitration of all claims and expressly barring class and collectivearbitration. The arbitration policy also prohibited employees from “disclos[ing] theexistence, content, or results of any arbitration hereunder without the prior written consentof both parties.” (ALJD at 5.)

Employees were given 30 days from receipt of the handbook to opt out of the entirearbitration policy. To opt out, the employee would have to specifically request an opt-outform and return it by the 30-day deadline. (ALJD at 3-8.) Out of 20,000 personnel filesreviewed by the employer in preparation for the unfair labor practice hearing, only 70employees opted out of the policy. (ALJD at 8.)

Like the Board in Horton, the ALJ in 24 Hour Fitness emphasized that “this casedoes not place in question an employer’s right to require employees to arbitrateemployment-related disputes.” (ALJD at 14.) The ALJ concluded, however, that twoprovisions contained within the arbitration policy were unlawful. First, the class/collectiveaction ban unlawfully limited employees’ Section 7 rights for the same reasons stated inHorton. (ALJD at 11-16.) Second, the nondisclosure restriction “imposes extremelimitations on activities protected by Section 7" by banning employees from communicatingabout employment-related disputes. (ALJD at 17-18.) The ALJ found that the employerviolated Section 8(a)(1) both by maintaining the policy and by enforcing it through motionsto compel individual arbitration of attempted class and collective cases.17 (ALJD at 18.)

The employer in 24 Hour Fitness contended that its arbitration policy (including theclass/collective action and disclosure bans) was voluntary, not mandatory, and thattherefore Horton did not apply. The ALJ rejected that argument, concluding that the multi-step opt-out process was “an illusion” and an unlawful burden on employees’ Section 7rights. (ALJD at 16.) Furthermore, the ALJ reasoned, even if employees opt out, their rightto concerted action is still impaired, because the arbitration policy limits the assistance theycan obtain from the vast majority of coworkers who fail to opt out. (ALJD at 16.) Harkening

17 In contrast to Horton, where the charging party initiated a class arbitration, all of theattempted class or collective claims mentioned in 24 Hour Fitness were brought in the judicialsystem. (ALJD at 8-11 (listing cases)).

20

back to Horton’s discussion of yellow-dog contracts, the ALJ commented that “agreementsthat seek to restrict employees from acting in concert with each other are the raison d’êtrefor both the Norris-LaGuardia Act and Section 7” (ALJD at 15) and that the employer’spolicy “seeks to restore the power imbalance between workers and their employers thatexisted prior to congressional passage of Norris-LaGuardia and the NLRA” (ALJD at 18).

The ALJ ordered the employer to withdraw all requests for enforcement of theclass/collective action ban and to inform the courts and arbitrators that it no longer objectsto the employees bringing class or collective actions. (ALJD at 21.)

Concord Honda, NLRB Case No. 32-CA-072231Advice Memorandum, 2012 WL 5942369 (Nov. 9, 2012)

This case arose at a union-represented facility without a collective bargainingagreement. The Union demanded class arbitration of an overtime pay dispute. Althoughthe employer’s mandatory arbitration agreement did not expressly prohibit classarbitrations, the employer took the position that the agreement should not be interpretedto permit class actions. The Division of Advice concluded that this violated Section 8(a)(1)under Horton. Despite the violation, the Division of Advice instructed the Region to issuea merit dismissal rather than a complaint, because the Company was seeking aconsolidated arbitration with all of the bargaining unit employees, and had also stated thatit would comply if the arbitrator certified a class. Advice also relied on the fact that theemployees were able to act collectively through the Union.

Appendix B:Pending and Recent Court Cases Addressing Horton

Ordering Collective Arbitration:

Herrington v. Waterstone Mortgage Corp., 2012 WL 1242318 (W.D. Wis. Mar. 16, 2012).The Court followed Horton and held that the arbitration agreement’s prohibition of class orcollective claims in any forum violated Section 7. The Court held the invalid waiverseverable and ordered arbitration with plaintiff being allowed to join other claimants. Subsequently, the arbitrator ruled that the arbitration agreement permits class arbitration. The employer filed a motion to vacate, which the district court denied. The employer fileda motion to reopen the case, which remains pending. (Case No. 11-CV-779.)

Granting Motion for Class Certification:

Avilez v. Pinkerton Government Servs., ___ F.R.D. ___, 2012 WL 5077136 (C.D. Cal.Oct. 9, 2012). In a class action where some class members had signed an arbitrationagreement containing a class action waiver but others had not, the Court certified theemployees who signed the waiver as a separate subclass, based on common issues of law

21

including whether the waivers were valid under Horton. The defendant did not opposeclass certification based on the waivers.

Compelling Individual Arbitration:

Owen v. Bristol Care, Inc., ___ F.3d ___, 2013 WL 57874 (8th Cir. Jan. 7, 2013). TheEighth Circuit reversed the District Court’s denial of a motion to compel arbitration basedon Horton in an FLSA case. The Eighth Circuit’s analysis focused on the enforceability ofarbitration agreements under “pro-arbitration Supreme Court precedent.” It distinguishedHorton on the ground that the waiver in Owen v. Bristol Care was narrower.

Delock v. Securitas Sec. Services USA, Inc., 2012 WL 3150391 (E.D. Ark. Aug. 1, 2012). The Court declined to follow Horton and held class-action waiver enforceable, finding thatthe NLRB’s interpretation of the NLRA conflicts with the FAA.

De Oliveira v. Citicorp North America, Inc., 2012 WL 1831230 (M.D. Fla. May 18, 2012).The Court rejected Horton, holding that it was bound by 11th Circuit precedent enforcingcollective action waivers in FLSA cases.

Morvant v. P.F. Chang’s China Bistro, Inc., 2012 WL 1604851 (N.D. Cal. May 7, 2012).While the Board’s analysis in Horton was “somewhat compelling,” the Court concluded theclass action waiver was enforceable under Concepcion.

Jasso v. Money Mart Exp., Inc., 2012 WL 1309171, *10 (N.D. Cal. Apr. 13,2012). TheCourt declined to follow Horton, holding that it was “constrained by Concepcion to enforcethe instant agreement according to its terms.”

LaVoice v. UBS Financial Services, Inc., 2012 WL 124590 (S.D.N.Y. Jan. 13, 2012). TheCourt declined to apply Horton, without any discussion of the NLRA.

Nelsen v. Legacy Partners Residential, Inc., 207 Cal. App. 4th 1115 (Cal. Ct. App. 2012). The Court held Horton irrelevant, because plaintiff was a supervisor and thus not coveredby the NLRA.

Iskanian v. CLS Transportation Los Angeles, LLC, 206 Cal. App. 4th 949 (Cal. Ct. App.2012), petition for review granted on other grounds, 147 Cal. Rptr. 3d 324 (Sept. 19, 2012).The Court of Appeals declined to follow Horton; as the NLRB is not tasked with interpretingthe FAA, the Court held that it was under no obligation to defer to the Board’s analysis inHorton and relied instead on Concepcion and CompuCredit Corp. v. Greenwood.

Other Cases Rejecting Horton:

Carey v. 24 Hour Fitness USA, Inc., 2012 WL 4754726 (S.D. Tex. Oct. 24, 2012). Afterthe Fifth Circuit ruled that 24 Hour Fitness’s arbitration agreement was illusory because the

22

Company retained the right to change it at any time, 669 F.3d 202 (5th Cir. 2012), theCompany sent potential plaintiffs a revised arbitration agreement, opt-out form, and copyof the complaint. The plaintiff moved to enjoin the Company’s communication, arguing thatthe arbitration agreement was unlawful under Horton. The District Court denied the motion,stating that Horton was inapplicable because the 24 Hour Fitness agreement contained anopt-out provision, and that Horton was inconsistent with the FAA in any event. (Two weekslater an NLRB ALJ held 24 Hour Fitness’s class waiver unlawful, see supra Appendix A.)

Palmer v. Convergys Corp., 2012 WL 425256, *3 n.2 (M.D. Ga. Feb. 9, 2012). In a caseinvolving a class/concerted action waiver without an arbitration agreement, the Courtgranted defendant’s motion to strike collective action allegations. The Court declined tofollow Horton, stating without any discussion that it did not apply to the facts of the case.

Truly Nolen of America v. Superior Court of San Diego County, 208 Cal. App. 4th 487(Cal. Ct. App. 2012). The Court declined to follow Horton, but remanded for the trial courtto determine under state law whether there was an implied agreement to class arbitration.

Cases Leaving Class Waiver Issue to the Arbitrator:

Andrus v. D.R. Horton, 2012 WL 5989646 (D. Nev. Nov. 5, 2012). The Court grantedHorton’s motion to compel arbitration, without prejudice to the plaintiff pursuing hisarguments against arbitrability before the arbitrator, including his argument under Hortonthat the arbitration agreement is unconscionable due to the class action waiver.

Tenet Healthsystem Philadelphia, Inc. v. Rooney, 2012 WL 3550496 (E.D. Pa. Aug. 17,2012). The parties filed cross-motions to confirm/vacate an arbitrator’s award whichrejected Horton and found that the arbitration agreement did not permit a class action. TheCourt confirmed the award, reasoning that the employee failed to demonstrate that Hortonconstituted controlling law, and that there has been disagreement over the effect of theHorton decision among district courts.

Valle v. Lowe’s HIW, Inc, 2011 WL 3667441 (N.D. Cal. Aug. 22, 2011). In a pre-Hortoncase, the Court refused to “preemptively” invalidate an arbitration agreement due to thepossibility of an arbitrator interpreting it to bar collective actions in violation of the NLRA.Plaintiffs failed to cite any authority for the proposition that the possibility of a future rulingby an arbitrator that an agreement barred class actions rendered it unenforceable.

Horton Issue Subject to Garmon Preemption:

Brown v. Trueblue, Inc., 2012 WL 1268644 (M.D. Pa. Apr. 16, 2012). The Court held thatit lacked jurisdiction to decide the Horton issue, because Plaintiffs’ argument was within theexclusive jurisdiction of the NLRB under San Diego Building Trades v. Garmon, 359 U.S.236, 245 (1959). NOTE: This application of Garmon preemption appears to be clearlywrong. See Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 83-86 (1982).

23