7th Circuit sides with NLRB, finds class-action waiver violates NLRA; circuits now split on D.R. Horton
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Friday, May 27, 2016

7th Circuit sides with NLRB, finds class-action waiver violates NLRA; circuits now split on D.R. Horton

By Dave Strausfeld, J.D. In a significant victory for the NLRB—one that creates a split with the Fifth Circuit over the Board’s much-maligned D.R. Horton decision—the Seventh Circuit held that a software company violated the NLRA by imposing a mandatory arbitration agreement that barred employees from seeking class, collective, or representative remedies to wage-and-hour disputes. Affirming the district court’s denial of the employer’s motion to compel arbitration of a putative class and collective action for unpaid overtime wages, the three-member appellate panel held that the class waiver interfered with employees’ protected Section 7 rights to engage in concerted activity and that nothing in the FAA justified enforcing the arbitration agreement in the face of its illegality. Under a well-accepted rule of statutory construction, courts should attempt to harmonize federal statutes to prevent conflicts rather than “go out looking for trouble,” and the NLRA and FAA could be harmonized through the FAA’s savings clause, the appeals court reasoned (Lewis v. Epic Systems Corp., May 26, 2016, Wood, D.). The employer, a health care software company, emailed some employees an arbitration agreement mandating that wage-and-hour claims could be brought only through individual arbitration. Under the agreement, employees waived the right to participate in “any class, collective, or representative proceeding.” Recipients were instructed to click two buttons to “sign” the agreement. They had to do so as a condition of continued employment; they were not allowed to decline if they wanted to keep their jobs. A technical writer who had signed the agreement filed a putative class action contending that the employer had misclassified its technical writers as exempt from overtime. The employer moved to compel individual arbitration of his claim. He responded that the arbitration clause violated the NLRA because it interfered with employees’ right to engage in concerted activities for mutual aid and protection and was therefore unenforceable. The district court agreed and denied the motion to compel. “Concerted activities.” Affirming, the Seventh Circuit began its analysis with Section 7 of the NLRA, which provides that employees have the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Although the NLRA does not define “concerted activities,” Congress’s purpose in enacting the statute was to help equalize the bargaining power of employees and employers. Consistent with this purpose, collective, representative, and class legal remedies “allow employees to band together and thereby equalize bargaining power,” the appeals court explained. Therefore, the phrase “concerted activities” in Section 7 should be “read broadly to include resort to representative, joint, collective, or class legal remedies.” Even if Section 7 were ambiguous on this point—“and it is not,” the appeals court emphasized—the NLRB had adopted a similar interpretation in its D. R. Horton decision, and the Board’s interpretations of ambiguous provisions of the NLRA are entitled to judicial deference. Class-action waiver violated NLRA. The question thus became: Did the arbitration agreement in this case impinge on Section 7 rights? “The answer is yes,” the appeals court declared. Because the agreement barred employees from taking advantage of any collective procedures, it ran “straight into the teeth of Section 7,” according to the appeals court. “We conclude that, insofar as it prohibits collective action, [the company’s] arbitration provision violates Sections 7 and 8 of the NLRA.” Consequently, the arbitration agreement was unenforceable. No conflict between NLRA and FAA. Were it not for the FAA, the appeals court could stop there. But the employer insisted that the FAA trumped the NLRA and thus entitled it to enforce its class-action waiver. This argument, however, “puts the cart before the horse,” the Seventh Circuit wrote. “Before we rush to decide whether one statute eclipses another, we must stop to see if the two statutes conflict at all.” Under well-recognized principles of statutory construction, when two statutes are capable of coexistence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective. In this case, the employer had not carried its burden to show that any conflict existed between the NLRA and the FAA, “let alone an irreconcilable one.” Here’s why: There is a general principle under federal law that illegal promises will not be enforced, and the FAA incorporates that principle through its saving clause, which confirms that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Illegality is one of those grounds. Therefore, because the class-action waiver in this case was unlawful under Sections 7 and 8 of the NLRA, “it is illegal, and meets the criteria of the FAA’s saving clause for nonenforcement.” In other words, if the NLRA and FAA are to be harmonized—“and according to all the traditional rules of statutory construction, they must be”—it is through the FAA’s saving clause, “which provides for the very situation at hand.” Because the NLRA rendered the class-action waiver in this case illegal, the FAA did not mandate its enforcement. Fifth Circuit taken to task. In D.R. Horton, Inc. v. NLRB, the Fifth Circuit came to the opposite conclusion, but there were “several problems” with the opinion’s logic, according to the Seventh Circuit. One of them was that it made no effort to harmonize the FAA and NLRA. “When addressing the interactions of federal statutes, courts are not supposed to go out looking for trouble,” the court here remarked; instead, they must employ a “strong presumption” that the statutes may both be given effect. Also, the Fifth Circuit’s reading of the Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant was too broad, according to the appeals court. Ninth Circuit questioned. In dicta, the Seventh Circuit also questioned the Ninth Circuit’s decision in Johnmohammadi v. Bloomingdale’s, Inc., which held that a class-action waiver may be enforceable where the employee had the right to opt out without penalty. Johnmohammadi conflicted with the Seventh Circuit’s 1942 decision in NLRB v. Stone, it said. But there was no need to discuss these differences here, because the employees in this case were given no opportunity to opt out of the faulty arbitration provision.

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