Fifth Circuit Upholds Arbitration Agreement Prohibiting Class/Collective Actions and Cautions NLRB to Reconsider Board Policy

Last week, in Murphy Oil USA, Inc. v. NLRB, the United States Court of Appeals for the Fifth Circuit upheld an arbitration agreement requiring employees to arbitrate claims on an individual basis, thereby reaffirming its holding in D.R. Horton, Inc. v. NLRB, despite the National Labor Relations Board’s (“NLRB”) aggressive attempt to find arbitration agreements unlawful. The case is noteworthy because the court rebuffed the Board’s effort to circumvent D.R. Horton and cautioned the NLRB “to strike a more respectful balance between its views and those of circuit courts” that review them. One wonders whether the NLRB will change its current stance against arbitration agreements that prohibit class/collective actions. Regardless, the Fifth Circuit’s decision helps to settle the current state of the law at the circuit court level that arbitration agreements and class/collective action waivers are lawful under the National Labor Relations Act (“NLRA”).

D.R. Horton
By way of brief background, in the NLRB proceeding that preceded the Fifth Circuit’s decision in D.R. Horton, the Board decided that an agreement requiring workers to resolve employment-related claims on an individual basis through arbitration both violated employees’ rights to engage in protected concerted activity under the NLRA and was likely to discourage employees from exercising such rights. On review, the Fifth Circuit rejected the NLRB’s conclusion that such agreements violated employees’ rights to engage in protected concerted activity (referred to as “Section 7 rights”), but concurred with the NLRB that the agreement in that case unlawfully could lead employees to believe they waived their rights to bring an administrative action before the NLRA – rights that cannot be waived even by an arbitration agreement.

Murphy Oil
The Fifth Circuit’s decision in D.R. Horton and the Board’s disagreement with that decision set the stage for round two in Murphy Oil. At issue in Murphy Oil were two versions of the employer’s arbitration agreement. The first, which pre-dated the NLRB’s decision in D.R. Horton, required workers to resolve all employment-related claims on an individual basis “by binding arbitration” and waive their rights to bring class/collective claims. The second, which the employer issued after the Board’s decision in D.R. Horton, explicitly carved out an exception to arbitration by allowing employees to bring unfair labor practice proceedings before the NLRB.

The NLRB ruled that both agreements violated employees’ rights to engage in protected concerted activity. The NLRB reasoned that both versions of the agreement were likely to chill employees’ rights to bring an action before the Board. The NLRB maintained that even the revised version – containing additional language that carved out an exception for unfair labor practice proceedings before the Board – would have a chilling effect on employee’s Section 7 rights under the NLRA because a requirement that employees arbitrate employment-related claims might confuse them regarding whether they could pursue administrative challenges under the NLRA.

Murphy Oil petitioned the Fifth Circuit for review of the NLRB’s decision. The Fifth Circuit, consistent with its decision in D.R. Horton, decided that a requirement to arbitrate employment-related claims individually and as well as a proscription of class/collective actions were lawful. The Circuit Court also concluded that language carving out an exception to arbitration for unfair labor practice proceedings in the second version of the agreement passed muster, although it agreed with the NLRB that the first version, which did not include the carve-out, was likely to have a chilling effect on employees’ rights.

Moving forward, it will be interesting to see whether the Board heeds to the Fifth Circuit’s position regarding class action waivers, at least in cases that could be reviewed by that court.

For questions about this blog or about employment arbitration agreements generally feel free to contact an attorney in the Gibbons Employment & Labor Law Department.