DOJ’s Class Waiver Shift Complicates DR Horton Defense

Law360, New York (June 20, 2017) — The U.S. Department of Justice’s recent refusal to throw its weight behind National Labor Relations Board precedent in a U.S. Supreme Court battle over the legality of mandatory arbitration agreements with class waivers added new obstacles for the NLRB in defending the position — first expressed in its controversial D.R. Horton ruling — that such agreements violate federal labor law, experts say.

The DOJ’s rare about-face came in a brief it filed with the U.S. Supreme Court on Friday saying that agreements between employers and their workers to bilaterally arbitrate any employment-related claims have to be enforced under the Federal Arbitration Act and can’t be precluded by the National Labor Relations Act.

The DOJ noted that the Obama administration had filed a brief with the high court supporting the NLRB’s position when the justices were considering granting certiorari in several cases tackling the question of whether arbitration agreements barring employees from pursuing work-related claims on a collective or class basis flout the NLRA.

But the Justice Department reconsidered that position following the change in presidential administrations because the initial position it took didn’t give enough weight to Congress’ policy favoring enforcement of arbitration agreements, according to the Friday brief.

Steven Suflas, managing partner of Ballard Spahr LLP’s offices in Denver and Boulder, Colorado, said the DOJ’s shift “will carry some weight” with the justices — more so than would a typical amicus brief — and that the DOJ’s action could impact the NLRB’s defense of D.R. Horton in numerous other ways.

“There is both a practical and a symbolic result [from the DOJ’s position reversal],” Suflas said. “The symbolic result is the government telling the Supreme Court, ‘We’ve changed our mind.’ That is going to give more credence to the employer argument.”

The more practical effect, Suflas says, is that the NLRB’s own lawyers, and not attorneys from the solicitor general’s office, will have to defend the board’s position that arbitration agreements containing class waivers are illegal.

The NLRB had announced shortly after the DOJ’s brief that Acting Solicitor General Jeffrey Wall authorized the labor board to represent itself before the Supreme Court in the class waiver cases.

“The Supreme Court won’t see the familiar faces of folks from the solicitor general’s office that they see [regularly],” Suflas said. “There will be a different reception.”

The class waiver issue is one that has vexed employers ever since the NLRB issued its 2012 decision in a case involving homebuilder D.R. Horton.

Although the Fifth Circuit rejected the NLRB’s position in both the D.R. Horton case and a subsequent case involving Murphy Oil USA Inc., the NLRB stood its ground and repeatedly held over the past several years that class waivers violate workers’ right to engage in concerted action under Section 7 of the NLRA.

The Supreme Court ultimately granted cert in January to a trio of cases that raise the issue. In two of the cases, the Seventh and Ninth circuits adopted the labor board’s long-standing position that such arbitration agreements are not legal, while in the Murphy Oil case, the Fifth Circuit ruled that they are valid.

Since the petitions were granted, the Sixth Circuit has also weighed in, siding with the Seventh and Ninth circuits. The Second and Eighth circuits, meanwhile, have taken positions similar to that of the Fifth Circuit.

Although employment-related arbitration agreements are generally enforceable under the FAA, the labor board argued in its cert petition appealing the Murphy Oil ruling that the company’s agreement wasn’t legal under the NLRA and that illegal agreements are not enforceable under the FAA’s so-called savings clause.

Under that FAA provision, arbitration agreements are valid “save upon such grounds” that exist to revoke the underlying contract.

The DOJ’s Friday brief argued that the savings clause doesn’t provide a basis for not enforcing the arbitration agreements at issue in the Supreme Court cases.

The arguments made by the DOJ were similar to those made by Murphy Oil, Epic Systems Corp. and Ernst & Young in their opening briefs earlier this month to the high court. Those briefs defended the use of class action waivers in employment contracts by arguing that the NLRA’s protections for concerted activity don’t defeat the FAA’s presumption that such agreements are valid.

Jerry Hunter, a partner at Bryan Cave LLP and a former NLRB general counsel from 1989 to 1993, told Law360 that the DOJ’s revised position “is not only the correct view of the law when considering the provisions of the FAA and the NLRA, but is also borne out by the fact that the NLRB has no specific expertise in analyzing the FAA.”

The former NLRB general counsel also said the board’s analysis of the interplay between the NLRA and the FAA “is not entitled to any deference by the court,” and added that the Supreme Court “has made clear in a very long line of cases” dating back decades that the NLRB isn’t entitled to deference when it determines how the NLRA should be harmonized with other federal statutes.

Additionally, Hunter said there is nothing in the NLRA’s legislative history that shows Congress intended to bar enforcement of arbitration agreements like those in the cases pending before the high court.

Ron Chapman of Ogletree Deakins Nash Smoak & Stewart PC said the DOJ’s change in position “demonstrates the utter falsity of the NLRB’s argument that its D.R. Horton ruling was grounded in precedent.”

“In this manner, the DOJ’s switch is certainly significant, but not determinative,” he said.

According to Suflas, the DOJ’s new position could make it more difficult for the high court — and, in particular, newly minted Justice Neil Gorsuch — to eschew years of decisions favoring the use of arbitration, including its 2011 AT&T Mobility v. Concepcion decision, which held that the FAA preempts state bans on class waivers in consumer contracts and that the statute’s savings clause didn’t encompass the ban that was imposed by the state of California.

“To accept the NLRB’s position, you’ve got to basically say there is a gaping loophole in … 25 years of consistent Supreme Court jurisprudence big enough to drive a train through,” Suflas said. “It’s a heavy lift for any new justice.”

Meanwhile, Kevin Murphy of plaintiffs’ side firm Van Kampen Law PC said the DOJ’s newly adopted stance may not ultimately mean much given the high court’s current conservative makeup, but that it still doesn’t do the NLRB any favors to have the DOJ arguing in opposition to the Horton precedent.

“If I were a betting man, I’d bet the new 5-4 majority won’t find in favor of D.R. Horton,” Murphy said. “I don’t know if it matters what the solicitor general’s position is, but it’s certainly not going to help the employee side of the ledger to have another voice arguing in favor of the employer position.”

The cases are Ernst & Young LLP et al. v. Stephen Morris et al., case number 16-300; NLRB v. Murphy Oil USA Inc., case number 16-307; and Epic Systems Corp. v. Lewis, case number 16-285, before the Supreme Court of the United States.

–Additional reporting by Melissa Daniels. Editing by Pamela Wilkinson and Aaron Pelc.