By: Andrew L. Scroggins, Noah A. Finkel, and David S. Baffa

Seyfarth Synopsis:  The NLRB has withdrawn the significant concession it offered at oral argument on the nature of the NLRA rights it seeks to assert in the face of employers’ mandatory arbitration programs.

As noted in our earlier blog post, the Supreme Court heard oral argument on October 2, 2017, on one of the most significant employment law cases in some time, to consider whether to permit employers to use mandatory arbitration programs that contain waivers of collective and class actions.

In the most dramatic moment of the morning, the NLRB’s General Counsel Richard Griffin made a significant admission.[1]

In response to a series of questions by a skeptical Chief Justice Roberts, Griffin agreed that it would not be an unfair labor practice for a mandatory arbitration program to require use of a forum whose rules did not allow class arbitration. Justice Alito quickly realized the significance of this point: “if that’s the rule, you have not achieved very much because, instead of having an agreement that says no class, no class action, not class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.” Griffin did not dispute this. He commented that “the provisions of the [NLRA] run to prohibitions against employer restraint.”

Next to the podium was counsel for the employees, Daniel Ortiz of the University of Virginia School of Law. Ortiz did not agree with that concession, thus seeming to highlight a fundamental dissent from the NLRB’s position. This gap was all the more notable for the fact that the Solicitor General already had abandoned the NLRB to side with the employers.

In an unusual development, just one day after the argument, the NLRB’s Griffin sent a short letter to the Court disavowing its argument and adopting the position staked out by Ortiz:

I am writing to correct an inaccurate response I gave at oral argument yesterday in response to the line of questioning by Chief Justice Roberts found at pages 47-50 of the transcript of the oral argument.  My responses, to the extent they indicated any difference from the responses given by employees’ counsel, Mr. Ortiz, to the questions of Chief Justice Roberts found at pages 60-64 of the transcript of the oral argument, were a result of my misunderstanding the Chief Justice’s questions and were inaccurate; Mr. Ortiz correctly stated the Board’s position and there is no disagreement between the Board’s and the employees’ position on the answers to those questions.

Such letters are not unprecedented. Still, it is a remarkable about face. For the justices who already seemed skeptical of the NLRB’s position, this change of position may only serve to highlight that the NLRB is not clear in the reasoning of its position or the effects such reasoning may have if ordered more broadly by the Court to apply to future cases.

[1] The New York Times highlighted Griffin’s concession:

The labor board’s general counsel, Richard F. Griffin Jr., argued for the workers. He made a concession at odds with the position of another lawyer on his side.

Mr. Griffin said that employment contracts could not require workers to give up collective action in arbitration but that the private entities that conduct arbitration could require that cases be pursued one by one.

If that is so, Justice Samuel A. Alito Jr. responded, “you have not achieved very much because, instead of having an agreement that says no class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.”

Daniel R. Ortiz, a law professor at the University of Virginia who also argued for the workers, took a different approach…

By: Ronald J. Kramer, Esq.

Seyfarth Synopsis:  In Weavexx, LLC the Board deferred to an arbitrator’s finding that the employer had the right to change its payday and pay cycle without first bargaining.  The bigger question is how much longer will such charges be deferred pending arbitration, and the extent to which the Board will defer to an arbitrator’s award.

The Board in a 2-1 decision reversed an ALJ and deferred to an arbitrator’s finding that an employer did not violate its collective bargaining agreement by unilaterally changing its employees’ payday and pay cycle.  Weavexx, LLC, 364 NLRB No. 141 (Nov. 2, 2016) (here).  In Weavexx the employer argued that its management rights clause gave it the ability to make the unilateral changes, and the arbitrator ultimately found that the “Company’s use of managerial discretion was proper and should not be seen as a violation of a binding past practice.”

So how did this “bread and butter” contract case get to the Board?  The arbitrator apparently did a very poor job of making it clear that he applied the contract to find the employer had the right to make the change.  The arbitrator framed the arbitration issue as whether the employer’s change violated a binding past practice.  While the arbitrator set forth the employer’s contract argument, and listed the management rights provision as one of the contract sections at issue, apparently in his analysis the arbitrator really only expressly addressed an employer’s “noncontractual inherent management prerogatives” and past practice instead of addressing how the management rights clause authorized the employer’s actions.

This, along with some confusion as to whether the arbitrator addressed both the pay cycle and payday change, was enough for the Regional Director and the ALJ to determine that deferral was not warranted under Speilberg Mfg. and Olin Corp. because the evidence failed to reflect that facts relevant to resolving the ULP were presented, considered or decided by the arbitrator.  Dissenting Chairman Pearce agreed, and focused more on arbitrator’s failure “to make any finding whatsoever” on the key issue of whether the management rights clause or other contract language authorized the employer’s unilateral actions.  The Board majority worked around the arbitrator’s failing by finding that there was enough evidence within the decision to determine that he did rely upon the management rights clause, and that the arbitrator adequately considered the ULP given that the contractual issue and evidence were factually parallel to the ULP.

There are three takeaways from this decision.  First, in any arbitration involving a deferred charge it is important to argue, address and get the arbitrator to rule on the issues and contract language, such as the management rights clause, at issue in the ULP.  Common law reserved management rights claims will not cut it.  Second, while in this case there was no agreed issue and the arbitrator just worked from the union’s position, how the issue is crafted is important.  Third, note the Regional Director, an ALJ and the Board Chairman opposed deferring to the award.  The Board and its Regions are scrutinizing deferral over contract disputes much more closely than in the past.  Not only will this make deferral more difficult, at some point the Board may opt to revise its deferral standards similar to what it did for deferring Section 8(a)(3) matters in Babcock & Wilcox Construction Co., 361 NLRB No. 132 (2014).  Deferral may be an endangered species.

 

By: Paul Galligan, Esq. & Samuel Sverdlov, Esq.

Seyfarth Synopsis: By filing a complaint against Postmates, Inc. challenging their arbitration waiver, the NLRB assumed that couriers for Postmates are employees, rather than independent contractors.

Earlier this month, the National Labor Relations Board (“NLRB”) filed a complaint and notice of hearing against Postmates, Inc. (“Postmates”) (12-CA-163079), an on-demand company, similar to Uber, that has a network of couriers delivering goods.  The complaint alleges that Postmates violated the National Labor Relations Act (“NLRA”) by requiring employee drivers to enter into arbitration agreements as a term of employment.  The complaint further alleges that Postmates interfered with the Section 7 rights of Customer Services Associates (“CSA”) by prohibiting them from discussing terms and conditions of employment.

Although the substance of the NLRB’s allegations – the challenged arbitration agreement – is interesting in and of itself (to read more on our extensive coverage of this issue, please see our articles here, here, here, here, and here), the critical importance of the NLRB’s complaint is far more subtle.

While the NLRB has made clear that misclassification of independent contractors could result in an unfair labor practice (“ULP”) (to read more on this issue, please see our articles here and here), in this case the NLRB simply assumed that Postmates’s couriers are employees, rather than independent contractors, without holding a hearing or allowing any briefing on the issue.  This is significant because the NLRB does not have jurisdiction to file complaints on behalf of independent contractors.

Outlook

The Postmates complaint should put employers in the on-demand economy (and generally, employers utilizing independent contractors) on notice that the NLRB will likely gloss over the employer’s characterization of independent contractor status, and file a ULP when it believes that workers are “employees” under the NLRA, and that a violation of the NLRA has occurred.

Accordingly, employers in the on-demand economy should: (1) make sure that their classification of couriers as independent contractors is consistent with the law; and (2) avoid having overly-broad or vaguely defined employment policies that could be interpreted to infringe on the Section 7 rights of potential employees. This “belt and suspenders” approach could help on-demand companies avoid lengthy and costly battles at the NLRB.

 

NLRB 2By: Karla E. Sanchez, Esq.

Seyfarth Synopsis: The Ninth Circuit joined the Seventh Circuit and the NLRB in finding that mandatory arbitration agreements that require all claims to be brought by employees on an individual basis violate the NLRA.

On August 22, 2016, the Ninth Circuit issued an opinion in Morris v. Ernst & Young, LLP, Case No. 13-16599, holding that an arbitration agreement which required employees to individually bring legal claims against their employer exclusively through arbitration violated Sections 7 and 8 of the National Labor Relations Act (“NLRA”).

In the case, an employee who had signed the arbitration agreement brought a class and collective action against the employer alleging employee misclassification to deny overtime wages under the Fair Labor Standards Act (“FLSA”).   The employer moved to compel arbitration arguing that the employees had to individually arbitrate their respective claims.  The trial court agreed and ordered individual arbitrations.

The Ninth Circuit reversed finding that concerted litigation—class or collective action—is protected activity under Section 7 of the NLRA, is a substantive right under the NLRA, and cannot be waived. Notably, Section 7 of the Act protects employees’ rights to, among other things, “engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  29 U.S.C. § 157 (emphasis added).  The Court held that concerted activity, is the “essential, substantive right” established by the NLRA. Id. slip op.at  6.   The Ninth Circuit then noted that Section 8 of the Act “enforces” the rights provided in Section 7, including engaging in concerted activities, by making it an unfair labor practice to interfere with these rights Id. slip op. at  9.  Given that Section 7 grants a right to engage in concerted activity and Section 8 precludes an employer from interfering with employees’ Section 7 rights, the Ninth Circuit concluded that an employer violates the Act by: 1) conditioning employment on signing an agreement that precludes collective and class actions, and 2) interfering with employees’ rights to engage in concerted activity.

The Ninth Circuit disagreed with the employer that the Federal Arbitration Act (“FAA”) required the enforcement of the arbitration agreement, finding that at issue here was the fact that the agreement required individual litigation and not that it required arbitration. Under the majorities’ reasoning, it would have found the same violation if the agreement required all suits to be brought in court if the suits had to be brought on an individual basis.  The Court further noted that the “FAA does not mandate the enforcement of contract terms that waive substantive federal rights.” Id. at slip op 18.

The dissent disagreed with the majority’s analysis, finding that while the NLRA “protects concerted activity, it does not give employees an unwaivable right to proceed as a group to arbitrate or litigate disputes.” Id. at slip op. 37.  The dissent found that the NLRA did not create a substantive right to litigate collective and class actions and concluded “nothing in the text, legislative history, or purposes of [Section] 7 precludes enforcement of an arbitration agreement containing a class action waiver.” Id. at slip op. 37.

Through the Court’s decision in Morris, the Ninth Circuit joins the Seventh Circuit in finding that arbitration agreements waiving collective legal action violate the Act. See Lewis v. Epic Sys. Corp., — F.3d –, 2016 WL 3029464 (7th Cir. 2016).  The Second, Fifth, and Eighth Circuits have concluded that the NLRA does not invalidate these agreements.

Given the split in the circuits, cases dealing with these type of mandatory class action waiver agreements will likely continue to be litigated until the Supreme Court rules on this issue.

Employers with these type of agreements need to consider whether they want to maintain these agreements in light of the current split and whether they are better served by making changes to their existing agreements. Employers concerned about their arbitration agreements are advised to consult with their labor and employment attorneys.

By: Bryan R. Bienias

On Monday of this week, the National Labor Relations Board (NLRB or Board) abandoned over 30 years of precedent and significantly modified the standards for the deferral of certain unfair labor practice charges to contractual arbitration procedures. This change likely will call into question the finality of arbitration awards in future cases involving allegations arising under Sections 8(a)(1) and (3) of the Act. (Notably, the Board did not address deferral in Section 8(a)(5) cases, since the General Counsel did not raise the issue.)

In Babcock & Wilcox Construction Co., 361 NLRB No. 132 (2014), the Board made sweeping changes to its longstanding post-arbitral deferral standards, through which it determines whether underlying unfair labor practice allegations have been addressed sufficiently by the arbitrator. If the Board determines that the arbitrator adequately addressed the unfair labor practice issues, the Board will defer to the arbitrator’s decision and not conduct an independent investigation.

Under the new standard, the burden of proof has shifted onto the party seeking deferral to show not only that that proceedings were “fair and regular” and the parties agreed to be bound, but also that (1) the arbitrator was explicitly authorized to decide the unfair labor practice issue, (2) the arbitrator was presented with and considered the “statutory issue” or was prevented from doing so by the party opposing deferral, and (3) Board law “reasonably permits” the award.

The standard enunciated by the Board likely will pose many issues for parties seeking to avoid duplicative litigation and who believe that contractual arbitration is an efficient means of resolving their disputes.

First, the party seeking deferral now must show that the arbitrator was explicitly authorized to decide the unfair labor practice issue—either through incorporation of this authority into a collective bargaining agreement or through a case-by-case authorization. Employers and unions with existing contracts either will need to renegotiate their contracts to give arbitrators the authority to determine these “statutory issues,” or agree to grant this arbitral authority in each individual case. Where one party refuses, the Board stated that it “is not [its] province to hold them to a choice they have not made.”

Second, the Board held that a party can establish the arbitrator was “presented with and considered the statutory issue” if it can show that the “arbitrator identified the issue and at least generally explained why he or she finds that the facts presented either do or do not support the unfair labor practice issue.” While the Board claims that it will not require the arbitrator to “engage in a detailed exegesis of Board law” nor does it seek to “turn arbitrators into administrative law judges,” it offers little guidance as to how thorough an arbitrator’s analysis must be. If an arbitrator simply fails to adequately address an unfair labor practice issue, the party seeking deferral may be out of luck. This is problematic, as the Board acknowledges that arbitrators “may not be attorneys trained in labor law.”

Finally, the Board now will review each arbitration award to assure that Board law “reasonably permits the award.” The Board claims that it will not require arbitrators to reach the same result the Board would reach, but will require the arbitrator’s decision to constitute a “reasonable application of the statutory principles” that the Board would follow. The Board notes that it “will not simply assume . . . merely from the fact that an arbitrator [for example] upheld a discharge under a ‘just cause’ analysis, that the arbitrator understood the statutory issue and had considered (but found unpersuasive) evidence tending to show unlawful motive.” In essence, a party seeking deferral must be prepared to show that not only does Board law “reasonably permit” the arbitrator’s award, but that the arbitrator “understood the statutory issue” and considered whatever evidence that the Board ultimately determines did or did not tend to show unlawful conduct.

In reaching its decision, the Board dismissed concerns that the new standard would encourage unions to withhold evidence concerning unfair labor practice issues in arbitration proceedings in order to defeat deferral, noting that either party can raise the statutory issue before the arbitrator.  The Board also rejected Member Phillip Miscimarra’s concerns that new standard performs unwarranted “surgery” on “two venerable institutions—final and binding grievance arbitration and the collectively bargained requirement of “cause,” in contravention of federal policies and the language of the Act itself.

In sum, besides requiring that parties either renegotiate their contractual grievance procedures or explicitly authorize the arbitration of unfair labor practice issues in each case, this standard likely will encourage parties to circumvent their grievance procedure by filing unfair labor practice charges whenever they believe they have a better chance of a favorable resolution before the Board. Moreover, arbitration proceedings themselves likely will become much more burdensome, as parties and arbitrators expend more time and energy addressing underlying unfair labor practice issues in an effort to avoid duplicative litigation.

Although the Board states that the new standards will avoid placing an undue burden on unions, employers, arbitrators or the arbitration system itself, it remains to be seen how this will play out in practice.  Stay posted.

By: Ronald J. Kramer and Joshua L. Ditelberg

Earlier today the Supreme Court issued its decision in Harris v. Quinn, Case No. 11-681 (June 30, 2014), finding in a 5 to 4 decision that the First Amendment prohibits the collection of “fair share,” or agency fees from Illinois Rehabilitation Program personal assistants.  The Court majority, by attacking longstanding precedent on this issue, raises significant questions as to the application of fair share fees in the public sector generally.

In Harris, the plaintiffs provided in-home health care services in Illinois for people with varying levels of disabilities and other health needs.  While the State paid the salaries of these personal assistants, provided health insurance, set certain employment qualifications, conducted performance reviews, and described services that assistants may provide, the person receiving the care—the customer—essentially controlled most aspects of the employment relationship, and by regulation was designated as the employer of the personal assistants.  As the State was not the sole employer of the personal assistants, at one time they had no collective bargaining rights under the Illinois Public Labor Relations Act (“Act”).  In 2003, the Act was amended to designate “personal care attendants and personal assistants working under the Home Services Program” as state employees for purposes of collective bargaining.  Some twenty thousand Rehabilitation Program assistants thereafter voted to be represented by the Service Employees International Union (SEIU).  The Rehabilitation Program assistants’ contract included a union security clause that required all assistants who were not union members to pay their “fair share” of fees for the costs of actual bargaining and non-political contract administration activities.  Illinois law permits such fair share fee provisions in collective bargaining agreements.

The plaintiffs (a group of potentially affected employees) sued, challenging the constitutionality of the fair share fee requirement.  They claimed that the fair share fee requirement violated the First Amendment by compelling their association with, and speech through, the union.  The plaintiffs asserted infringement even though, by paying only “fair share” fees, ostensibly they were only paying for the union’s representation of them for bargaining and administrative (not political) purposes.  No monies arguably were going towards union political activities.

The District Court and then the Seventh Circuit rejected the plaintiffs’ claims.  Finding the personal assistants were state employees, at least with regard to collective bargaining, the Seventh Circuit found the union’s collection and use of fair share fees was permitted by almost sixty years of prior Supreme Court jurisprudence, especially Railway Employees’ Dep’t v. Hanson, 351 U.S. 225, 76 S. Ct. 714 (1956) (finding Railway Labor Act preempted the state constitution and thus a union shop provision in a contract was lawful), and Abood v. Detroit Bd. of Educ., 431 U.S. 209, 97 S. Ct. 1782 (1977) (holding no First Amendment violation to require non-union public teachers under the  “agency shop” clause of their collective bargaining agreement to financially support the union’s collective bargaining, contract administration, grievance-adjustment procedures, and other activities “germane to its duties as collective-bargaining representative.”).

In reversing the Seventh Circuit, the Court noted that the State of Illinois was seeking to significantly expand Abood to apply, “not just to full-fledged public employees, but also to others who are deemed to be public employees solely for the purpose of unionization and the collection of an agency fee.”  The Court examined its earlier reasoning in Abood, and found its analysis to be “questionable on several grounds.”  The Court criticized the decision for, among other reasons, simply assuming that the Court previously had decided such fair share payments were constitutional in the public sector, and for failing to appreciate the difference between core union speech involuntarily subsidized by dissenting public sector employees, where wages and benefits also were political issues, and core union speech involuntarily funded by their private sector counterparts.

Given Abood’s “questionable foundations,” and because personal assistants are quite different from full-fledged public employees, the Court refused to extend Abood to cover what it termed “partial-public employees”—a concept which is novel and undeveloped in public sector employee jurisprudence.  (Elsewhere in its decision, the Court also referred to “quasi-public employees.”) The Court then analyzed the constitutionality of the payments compelled by Illinois law under applicable First Amendment standards.  The Court held that the agency fee provisions could not satisfy the test used in Knox et al. v. Service Employees International Union, Local 1000, __ U.S. __,  132 S. Ct. 2277 (2012), specifically that the provision does not serve a compelling state interest that cannot be achieved through means significantly less restrictive of associational freedoms.  The Court rejected claims that agency fee provisions promoted “labor peace”—in its view, a critical rationale supporting agency fees in the private sector—given the union’s status as exclusive bargaining agent was not inextricably linked to such fees, and any threat to labor peace was diminished in this situation given personal assistants do not work at a common facility (with potentially conflicting labor groups) but instead work in private homes.  That the union might be an effective advocate for personal assistants further was insufficient to warrant the restriction in employee rights.

The four dissenting Justices argued that Abood controlled the outcome of this case and that, as such, the agency fees provision should be upheld.  The dissent agreed with the Seventh Circuit that the fact the personal assistants might be jointly employed by both the State and the individual customers should make no difference to the analysis.  The dissent considered the terms over which the State exercised control to be primarily those that would be subject to bargaining, and that the fact the scope of bargaining is circumscribed given the customer’s authority over individualized employment matters like hiring and firing to be irrelevant—given that states often limit the scope of permissible public sector bargaining.

The dissent further noted that, despite the majority’s “potshots” at the decision, even it declined the invitation to overturn Abood, and that the Court’s “precedent … fairly understood and applied, makes it impossible for this Court to reverse that decision.”  The dissent spent considerable time explaining why the Court should not overturn Abood given it is stare decisis, and explained Abood was properly decided in the first place.

While Harris technically is limited to so-called “partial-public employees, the majority’s blistering attack and critique of Abood raises questions as to whether the current majority (or at least much of it) would vote to uphold Abood if it faced a case involving full-fledged public sector employees.  This fear should be of grave concern to public sector unions.  Public sector employees constitute almost half of the unionized workforce, even though many states limit or prohibit public sector unions.  Indeed, according to the Bureau of Labor Statistics, in 2013 38.7% of the public sector workforce was organized (whether union members or not), a percentage five times higher than the private sector workforce (7.5%).  In states where public sector employees are legally permitted to organize they have become very powerful politically.  If public sector employees who have been forced to pay fair share fees for years to organizations they do not support are no longer required to pay such fees, it might deliver a critical blow to the clout of public sector unions.

Public sector unions dodged a bullet.  The question remains whether they will be able to do so the next time, assuming, of course, the makeup of the Court does not change.

By: Kenneth R. Dolin, Esq.

The National Labor Relations Board recently invited interested parties to file briefs in Babcock & Wilcox Construction Inc., Case 28-CA-022625, to determine whether the Board should continue, modify, or abandon the Olin/Spielberg standard for deferral to arbitration awards.

Under the existing standard, the Board defers to an arbitration award when (1) the arbitration proceedings are fair and regular; (2) all parties agree to be bound; and (3) the arbitral decision is not repugnant to the purposes and policies of the Act. Spielberg Mfg. Co., 112 NLRB 1080 (1955). Further, the arbitral forum must have considered the unfair labor practice issue. The Board deems the unfair labor practice issue adequately considered if (1) the contractual issue is factually parallel to the unfair labor practice issue, and (2) the arbitrator was presented generally with the facts relevant to resolving the unfair labor practice issue. Olin Corp., 268 NLRB 573 (1984). The burden of proof rests with the party opposing deferral.

The NLRB General Counsel has asked the Board to adopt a different standard in accordance with the Guideline Memorandum issued three years ago. Under his proposal, the party urging deferral would bear the burden of demonstrating that (1) the collective-bargaining agreement incorporates the statutory right, or the statutory issue was presented to the arbitrator, and (2) the arbitrator correctly enunciated the applicable statutory principles and applied them in deciding the issue. If the party urging deferral makes that showing, the Board would defer unless the award was clearly repugnant to the Act.

The Board is inviting all interested parties to file briefs. The briefs must be filed with the Board in Washington, D.C. on or before March 25.

The Obama Board is expected to change its framework for post-arbitral deferral because it will likely find Olin’s standard for deferral inadequately protects employees’ statutory rights in Section 8(a)(1) and Section 8(a)(3) cases. Thus, the Board is likely to revise its post-arbitral standard in Section 8(a)(1) and Section 8(a)(3) statutory rights cases to ensure actual arbitral consideration of the rights afforded by the NLRA and will not tolerate substantive outcomes from arbitrators that differ significantly from those that the Board itself would reach if it considered the matter de novo.

In this regard, the Board also will likely change Olin’s allocation of the burden of proof for deferral, placing such burden on the party urging deferral to ensure that the statutory issues have been considered by the arbitrator, as well as to encourage parties seeking deferral to establish an evidentiary record that will give the Board a sounder basis for reviewing arbitral awards and deciding whether to defer. If the party urging deferral makes the showing set forth above, the Board is expected to enunciate a standard where it will defer unless the result is “palpably wrong,” i.e., the arbitrator’s award is not susceptible to an interpretation consistent with the Act.

Requiring that statutory issues be considered as a condition for deferral to an arbitral award would also likely result in the Board reviewing the standards for deferral for pre-arbitral grievance settlements as well. Thus, it is likely that the Board will adopt a rule that gives no effect to a grievance settlement unless the evidence demonstrates that the parties intended to settle the unfair labor practice charge as well as the grievance. If the evidence does so indicate, the Board will likely review the non-Board settlement under the standards of Independent Stave Co., Inc., 287 NLRB 740, 743 (1987): (1) whether parties have agreed to be bound and the General Counsel’s position; (2) whether the settlement is reasonable in light of the alleged violations, risks of litigation, and status of litigation; (3) whether there has been any fraud, coercion or duress; and (4) whether the respondent has a history of violations or of breaching previous settlement agreements.

If the Board adopts a more thorough post-arbitral review of deferral cases, it is likely that charges alleging Section 8(a)(1) and Section 8(a)(3) violations will be investigated more thoroughly before an “arguable merit” determination in considering Collyer deferral is made. This may actually result in more evidence taken from the Charging Party, including affidavits, before an “arguable merit” determination is made.

The appellate courts have generally approved of the Board’s approach on post-award deferral and the standards articulated in Olin. The Obama Board’s anticipated tightening of the standard for post-arbitral deferral will certainly be contrary to the national policy strongly favoring the statutory arbitration of disputes, and will likely result in courts of appeal more closely scrutinizing refusals by the Board to defer to arbitration. It also may encourage parties to circumvent their grievance procedure by filing unfair labor practice charges whenever they believe they had a better chance of a favorable resolution before the Board.

As to the “palpably wrong” criteria, it remains to be seen whether the Board will at least defer to a pre-arbitral settlement or post-arbitration award whenever the statutory right implicated is within the category of “waivable” rights — e.g., economic issues, the right to strike, and matters of selective discipline — provided that the proceedings are fair and regular and the union has not breached its duty of fair representation. It is quite possible, though, that the Obama Board may only give deference to a settlement or award when it approves of the result of a settlement but intervene whenever it does not approve. As Judge Harry Edwards observed more than 20 years ago in the context of NLRB deferral, “a cynical observer might be inclined to view this approach as a veritable recipe for arbitrary action.”  Plumbers & Pipe Fitters Local 520 v. NLRB, (UE&C-Cataglia, Inc.), 955 F.2d 744, 756-57 (D.C. Cir. 1992).

 

By: Anne D. Harris, Esq.

Despite heavy criticism and the Court of Appeals for the Fifth Circuit’s recent invalidation of the National Labor Relations Board’s (“NLRB”) D.R. Horton decision, the NLRB has not revised its position on class action waivers in employment arbitration agreements. Perhaps not surprisingly, the Board has not only ignored the criticism but instead continues to stretch the boundaries of its reach. In Leslie’s Poolmart, Inc., a recent decision by an NLRB Administrative Law Judge (“ALJ”), demonstrates that tendency. There, the ALJ expanded the Board’s D.R. Horton holding to include arbitration agreements that are silent on the issue of class and collective claims.

Background Facts

In Leslie’s Poolmart, new employees were required to sign an arbitration agreement providing that they agreed to arbitrate and employment-related issues. However, the agreement did not indicate whether an employee could pursue such claims on behalf of a class. The issue arose when an employee filed a federal class action suit against the company for an alleged failure to pay overtime wages. In response, the company filed a motion to compel arbitration for the individual claimant and to dismiss the class action suit. The employee filed an unfair practice charge against the company as a result of its actions.

Holding

The ALJ first rejected the company’s argument that D.R. Horton no longer was good law after the Fifth Circuit’s decision. Rather, the ALJ asserted that, absent a Supreme Court ruling, she was still bound by the Board’s D.R. Horton precedent. The ALJ also concluded that, although the employee filed a class action complaint without active participation by any other employee, that employee was nevertheless engaged in protected Section 7 activity because he sought to enlist the involvement of other employees for “mutual aid and protection.” Further the ALJ concluded that although the arbitration agreement did not specifically address class/collective action claims, the motion to compel arbitration violation Section 8(a)(1) of the Act because, following D.R. Horton, it interfered with the rights of employees to initiate classwide litigation.

What This Means For Employers

This decision underscores the Board’s adamant refusal to revise its position on class action waivers in employment arbitration agreements despite disagreement in many federal jurisdictions. Absent a repudiation by the Supreme Court, the Board is unlikely to reverse its position in D.R. Horton, and future decisions may expand it even further.

By: Michele Haydel Gehrke, Esq.

On November 8, 2013, Administrative Law Judge Bruce D. Rosenstein upheld a class action waiver in a mandatory employment arbitration agreement notwithstanding the NLRB’s controversial ruling in D.R. Horton banning such class action waivers because they purportedly chill employees’ rights to engage in concerted protected activity under Section 7 of the NLRA.

In Chesapeake Energy Corporation, Case No. 14-CA-100530, a non-union at-will employee filed a charge contesting his employer’s dispute resolution program (“DRP”), which required employees to bring all employment-related disputes in arbitration (including any issues arising under the NLRA) and waive their right to bring a class action or other representative lawsuit. The Acting General Counsel filed a Complaint against the employer and argued that the DRP was unlawful because of the class action ban, and because the DRP including claims arising under the NLRA which could cutoff employees’ access to the Board. 

With respect to the class action waiver ban, the employer argued that the recent United States Supreme Court decision in American Express Co. v. Italian Colors Restaurants, 133 S.Ct. 2304 (2013) contravenes the Board’s D.R. Horton ruling. In American Express, the Supreme Court enforced an arbitration agreement that included a class action waiver under the Federal Arbitration Act, even though the cost of prevailing on the claim in individual arbitration would likely exceed any potential recovery. The Supreme Court noted in American Express that no contrary Congressional command required the rejection of class action waivers, and the Sherman and Clayton Acts at issue made no mention of class actions. Further, these statutes were enacted before the advent of class actions under Federal Rule of Civil Procedure 23. 

Judge Rosenstein found the employer’s arguments persuasive and held “that the Board’s position that class and collective action waivers in arbitration agreements violate Section 8(a)(1) of the Act cannot be sustained.” The Judge dismissed that allegation of the Complaint. 

However, the Judge did find merit to the allegation that the DRP interfered with employees’ access to the Board and its processes by subjecting claims arising under the NLRA to binding arbitration, and found a violation of Section 8(a)(1). He ordered the employer to rescind or revise the DRP to exclude unfair labor practice allegations under the NLRA and the right of employees to file charges with the Board.  He also required the employer to post a notice. 

Judge Rosenstein’s decision is significant because he declined to follow D.R. Horton, notwithstanding the well-established rule that ALJs are bound by Board decisions unless they have been overturned by the Supreme Court or the Board.  D.R. Horton is on appeal to the United States Court of Appeal for the Fifth Circuit and, while heavily criticized, is technically still binding Board precedent. Other ALJs have continued to follow D.R. Horton while the appeal is pending.

It will be interesting to see whether other ALJs follow Judge Rosenstein’s lead and decline to follow D.R. Horton while we await further word from the Fifth Circuit. In the meanwhile, let’s be thankful for this decision and hope that D.R. Horton is reversed on appeal. Stay tuned for more developments here.

By: Brian M. Stolzenbach, Esq.

The Decision

The U.S. Court of Appeals for the Seventh Circuit (covering Illinois, Indiana, and Wisconsin) has declared it illegal for employers to pay the full salary of certain union officials who spend all their time representing employees and not working for the employer. See Titan Tire v. USW, Case No. 12-1152 (Nov. 1, 2013). In Titan Tire, the employer paid the full salaries of certain Steelworkers officials, even though the union officials worked full-time on typical union representation matters, spending most of their time outside the employer’s plant altogether.  They even spent time on matters relating to their representation of another employer’s employees. Titan decided that these payments were a violation of Section 302 of the Labor Management Relations Act (which prohibits employer payments to union officials, absent certain exceptions) and therefore stopped paying the salaries. This led to a union grievance. An arbitrator held that the cessation of payments violated the parties’ collective bargaining agreement and determined that the payments themselves were not actually in violation of Section 302 (holding that one of the statutory exceptions applied). Titan sued to vacate the arbitration award, contending that the arbitrator got it wrong and was requiring the company to violate the law. The district court refused to vacate the award, but the Seventh Circuit reversed – holding that, yes, Titan’s payment of the union officers’ salaries would be illegal (indeed, criminal) under Section 302. 

Potential Further Developments

In so holding, the court disagreed with the Third Circuit’s opinion in Caterpillar v. UAW, 107 F.3d 1052 (3d Cir. 1997), and all the surrounding circumstances suggest that the Titan Tire case may well be reviewed by the U.S. Supreme Court if the Steelworkers request it. To begin with, the Supreme Court initially was set to review the Caterpillar case before the parties to that case settled their dispute. Moreover, three judges on the Seventh Circuit thought that the Titan Tire case itself should have been heard en banc (i.e., considered by all the judges on the court, rather than the standard panel of three) because they disagreed with the decision. And even Caterpillar was a split decision, with then-judge (now Justice) Alito among the dissenters. Furthermore, Chief Judge Wood of the Seventh Circuit – who argued for en banc review in Titan Tire – stressed in her opinion that the decision “is . . . important . . . for what it does to labor law.”

What Does This Mean for Employers?

Meanwhile, unless and until the Supreme Court steps in and clarifies the law in this area, the Titan Tire decision is the law of the land in the Seventh Circuit and potentially persuasive authority in other areas of the country. So what does this mean for employers? In the near term, it means that employers should review with counsel any current arrangements under which they are paying the salaries of union officials. Employers will want to determine the potential legal risk and the practical avenues for addressing it. As noted above, Section 302 is a statute whose violation carries potential criminal liability. Are we on the verge of a massive influx into the federal penitentiaries in Illinois, Indiana and Wisconsin – and possibly elsewhere? Maybe not.  But the legal risk here is certainly somewhat different – and potentially more serious – than that presented in most labor relations scenarios. Accordingly, employers would be wise to give the issue their serious attention.