Wednesday, December 4, 2013

Arbitration Uber Alles, Again

New ImageThe Fifth Circuit just handed down its opinion in D.R. Horton v. NLRB, and, while the Board may have won the battle, it seems to have lost the war – absent en banc review or cert.

 As anybody who has suffered through presentations or conversations with Tim Glynn or me knows, Horton had enormous potential for changing the landscape of arbitration law, reflected in our recent article in Alabama.  In its decision, the NLRB ruled that the company’s “Mutual Arbitration Agreement” violated Section 7 and 8(a) for two reasons: first, by being drafted broadly enough to convey to a reasonable employee that she was giving up her right to file unfair labor practice charges with the Board; and, second, by cutting off the right of employees to pursue both class (or joint) actions and class (or joint) arbitration, it infringed employee rights to act concertedly for mutual aid and protection.

 The second ground was obviously more sweeping than the first, since it had the potential – at least in the employment arena – to undermine the Supreme Court’s validation in Concepcion of agreements barring class arbitration.

Before the Fifth Circuit, the Board won on the first ground and lost on the second.  Upholding the Board on the first ground is not insignificant -– management-side attorneys will be scurrying around for months reviewing and revising arbitration agreements to make more explicit that workers retain the right to resort to the NLRB. But far more important is the court’s rejection of the concerted action argument. 

To get to either of these issues, the Fifth Circuit had to wade through a variety of arguments about the composition of the Board that rendered Horton, including validity of recess appointments of Board members (the issue before the Supreme Court in Noel Canning), whether Member Becker’s appointment (even if valid) expired before Horton was handed down, and whether there was improper delegation of authority to the three member panel that decided Horton. I’ll spare the reader the technical discussion, but the Fifth Circuit either ruled in the Board’s favor  or dodged the questions thus allowing it to reach the merits.

 As to whether the arbitration agreement violated 8(1)(1) and (4) for “including language that would lead employees to a reasonable belief that they were prohibited from filing unfair labor charges,” the court upheld the Board. Even though the agreement did not explicitly address charges to the agency, it was written in language that could be reasonably construed to do so.  Again, the court’s upholding the Board’s conclusion on this ground is significant, although clearly of less import than if the court had also affirmed on the other ground.

As for the second ground, the opinion acknowledged “some support” for the “Board’s analysis that collective or class claims, whether in lawsuits or in arbitration” are protected concerted activity under the NLRA. But that conclusion did not take into account the Federal Arbitration Act, and whatever deference the Board may be owed in construing the NLRA in isolation was not appropriate where the FAA was concerned. Essentially treating the FAA as a “super-statute,” the court stressed the “barrier any statute faces before it displaces the FAA.”

For reasons not clear, the opinion then detours into an excursion as to whether the class actions  are a substantive or procedural right, not surprisingly finding them procedural. Why that would matter when Section 7 appears to largely protect rights that could be described as “procedural” (organizing) is not so clear.

At any rate, the court proceeded to consider two “exceptions” to the FAA command that arbitration agreements be enforced according to their terms – although I, at least, don't understand why they are two separate exceptions rather than simply a way of meshing two statutes which are at least in some tension with each other.

 The first exception, according to the court, was the FAA’s “savings clause,” which allows courts to refuse to enforce an arbitration agreement “upon such grounds as exist in law and equity for the revocation of any contract.”  Although the NLRA’s prohibition (much less the Norris-LaGuardia Act’s explicit declaration  that agreements to such effect are not enforceable) would seem to satisfy that clause, the Fifth Circuit’s “detailed analysis” of Concepcion led it to the opposite conclusion -- essentially because, while facially neutral between arbitration and litigation, the result would be to disfavor arbitration. The presumption seemed to be that employers would forego even individual arbitration if faced with class actions/class arbitration.     

 This is all somewhat head-scratching since it essentially bootstraps the conclusion it reaches.  The FAA’s preference for arbitration is undeniable, but, by the FAA’s own terms, limited. The limit would seem to have been reached by the boundary staked out by Norris LaGuardia and the NLRA. The preference, nevertheless, somehow o’er leaps the textual boundary that the statute itself established.

At any rate, the court moved on to the second exception – application of the FAA may be precluded by another statutory command (the NLRA). The Fifth Circuit begins, again, by treating FAA as a super-statute, and finding no explicit language trumping the FAA. It doesn’t explain why the Norris LaGuardia language “shall not be enforceable” doesn’t suffice as explicit language to the contrary, but presumably that’s because it only addresses “any undertaking or promise” (emphasis added) without mentioning arbitration.  (The court dismisses the Norris LaGuardia argument in a footnote without explaining why).

In any event, lacking explicit trumping language, a contrary “general thrust” of the NLRA is not sufficient, although an “inherent conflict” would be. Such a conflict, however, is lacking because arbitration is generally favored in the union context (of course, the cases cited involve arbitration under collective bargaining agreements where the union can be expected to keep employers in check) and because of “conceptual problems” whose significance is not so clear.

Judge Graves concurred with the affirmance of the Board’s decision but would have found that the arbitration agreement “interferes with the exercise of employees’ substantive rights” under Section 7.

One question that remains puzzling in the wake of the Horton opinion is the effect,, if any, of arbitration agreements that constitute unfair labor practices (as in Horton itself) on the validity of the arbitration agreement. An employer in the situation of Horton could, of course, modify its arbitration agreements to make sufficiently clear to employees executing them that they retain the right to file charges with the Board. But suppose employers don't, or suppose that the question of arbitration arises under an extant agreement that violates the statute as intepreted by both the Board and the Fifth Circuit?  Should a court being asked to stay a suit pending arbitration do so, thus "enforcing" an illegal agreement? Or should it find the whole agreement unenforceable because tainted by illegality? Or what?


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Footnote 11 of the Opinion contains this shout-out to Charlie and Tim:

"A thorough explanation of the strongest arguments in favor of the Board’s decision,
which embraces the Board’s distinctions from earlier Supreme Court pronouncements on arbitrations and adding some of its own, appears in a recent law review article. Charles A. Sullivan & Timothy P. Glynn, Horton Hatches the Egg: Concerted Action Includes Concerted Dispute Resolution, 64 ALA. L. REV. 1013 (2013). We do not adopt its reasoning but note our consideration of its advocacy."

Posted by: Sachin Pandya | Dec 4, 2013 10:46:56 AM

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