Rigid Board? Arbitration Clauses Banning Class Action Litigation Continue to Come Under Fire

Multiple courts have weighed in on the issue and have found such clauses to be enforceable. The National Labor Relations Board (NLRB or Board), however, has routinely expressed doubt over the validity of class-action waivers in employment agreements that require arbitration. A recent decision by an NLRB Administrative Law Judge (ALJ) in Tampa, Florida highlights the divide between federal case law and the NLRB’s position on such clauses.

In Samsung Electronics America, Inc. f/k/a Samsung Telecommunications America, LLC, Case No. 12-CA-145083, Administrative Law Judge Joel Biblowitz struck down a provision in Samsung’s Employment Agreements, titled “Mutual Agreement to Arbitrate Claims” (the Clause) as violating Section 7 of the National Labor Relations Act (the Act). The Clause provides that neither the company nor any employee can initiate or prosecute a lawsuit in court, or arbitrate a lawsuit against the other as a class action. The Clause did not cover claims before the EEOC or the NLRB. The Clause was part of an employment agreement that Samsung required new hires to sign starting in January 2013.

In November 2014, a Samsung Field Sales Manager, Jorgie Franks (the Complainant), filed a Nationwide Collective Action Complaint and Demand for Jury Trial in the United States District Court for the Middle District of Florida on behalf of himself and other plaintiffs. The Complaint alleged that Samsung violated the Fair Labor Standards Act by failing to pay overtime wages to the Complainant and similarly situated Field Sales Managers.

Samsung thereafter sent a letter to the Complainant’s counsel, demanding that the Complaint be withdrawn and that the plaintiffs individually mediate and/or arbitrate their claims as required by the Clause. The plaintiffs in the federal lawsuit eventually agreed to a dismissal of the Complaint without prejudice and filed a charge with the NLRB, alleging that the Clause violated their Section 7 rights under the Act.

In agreeing with the Complainant, the ALJ first relied on the holding in D.R. Horton, Inc. 357 NLRB No. 184 (2012), which stated that if an employer’s rule or practice explicitly restricts Section 7 activities it is unlawful. If not, a violation is dependent upon showing one of the following: the employer’s rule has been applied to restrict the exercise of those activities or employees would reasonably construe the rule to prohibit protected activity. In finding a violation in D.R. Horton, the Board stated: "employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums arbitral and judicial" as a condition of employment. The ALJ recognized that although the Clause specifically excludes from its coverage claims before the Board and the EEOC, he nevertheless held that the Clause violated the Act under D.R. Horton. His rationale was that the Board's findings in D.R. Horton were not based solely upon the fact that the employees were precluded from filing charges with the Board; rather, it was because the employees were limited to individual arbitrations, rather than any collective action.

The ALJ also relied on the NLRB’s more recent precedent: Murphy Oil, USA, Inc., 361 NLRB No. 72 (2014) and Cellular Sales of Missouri, L.L.C., 362 NLRB No. 27 (2015). In Murphy Oil, the Board stated: “To be clear, the NLRA does not create a right to class certification or the equivalent, but as the D. R. Horton Board explained, it does create a right to pursue joint, class or collective claims if and as available, without the interference of an employer-imposed restraint.” The ALJ concluded that because the Clause restricts the employees' right to pursue joint, class or collective action, even while permitting Board charges, it violates Section 8(a)(1) of the Act. The ALJ ordered that Samsung must immediately stop its practice of maintaining and/or enforcing the mandatory arbitration agreement that it requires employees to sign as a condition of employment.

A major issue with the ALJ’s analysis is that the Fifth Circuit has explicitly disagreed with the Board’s conclusion in D.R. Horton and Murphy Oil. Despite the fact that the Fifth Circuit held that the arbitration agreement in D.R. Horton did not violate the Act, the NLRB reaffirmed that decision in Murphy Oil. Thus, there is a split between the way courts have interpreted the class action waiver arbitration clause issue and the way that the Board has. The Samsung case is problematic for employers for a number of reasons. While employers have not uniformly been able to restrict Board or EEOC collective actions, employers have regularly restricted class actions for other types of claims – such as FLSA claims – through class arbitration clauses in employment agreements and the courts that have considered this issue have supported this position. The decision raises another issue for employers on whether class action waivers are enforceable. Samsung can now appeal this case to the full Board and eventually, to either the D.C. or Eleventh Circuit Court of Appeals. The issue may ultimately be decided by the Supreme Court.