Federal Court Issues Temporary Restraining Order Prohibiting Enforcement of California’s Anti-Arbitration Law
Today a federal court issued a temporary restraining order prohibiting the state of California from enforcing Assembly Bill 51, the state’s new anti-arbitration law, at least until another hearing scheduled for January 10, 2020. The new law was scheduled to take effect January 1, 2020.
The temporary restraining order was issued in the federal lawsuit filed earlier this month by the U.S. Chamber of Commerce and other pro-business organizations seeking a permanent injunction against enforcement of AB 51. The business groups argue that AB 51 is preempted by the Federal Arbitration Act (“FAA”).
In the order, the U.S. District Court for the Eastern District of California found the “plaintiffs have raised serious questions regarding whether the challenged statute is preempted by the Federal Arbitration Act” and that allowing the new law to take effect even temporarily could “cause disruption in the making of employment contracts” in California.
Today’s order means California employers can continue, at least until January 10, 2020, to require employees to sign mandatory arbitration agreements as a condition of employment. It also means the Court found the plaintiffs’ argument that AB 51 is preempted by the FAA to be persuasive.
National Labor Relations Board Decision Challenges Legality of Class Action Waivers
Last week, the National Labor Relations Board (NLRB) ruled that an arbitration agreement signed as a condition of employment, which prohibited the filing of joint, class, or collective actions in arbitration or in court, violated the National Labor Relations Act (NLRA), and thus was unenforceable. This decision casts substantial uncertainty on the viability of class action waivers in arbitration agreements between employers and employees.
In D.R. Horton, Inc. and Michael Cuda, 357 NLRB No. 184 (Jan. 3, 2012), a construction superintendent attempted to initiate a nationwide class arbitration on behalf of similarly situated superintendents, alleging that his employer was misclassifying its superintendents as exempt from overtime under the Fair Labor Standards Act. The employer sought to avoid the arbitration because the arbitration agreement between the parties barred collective claims. In response, the employee filed a claim with the NLRB alleging that the arbitration agreement violated his rights under the NLRA, which protects employees’ rights to engage in concerted action for mutual aid and protection. An administrative law judge agreed with the employer and dismissed the claim. However, the NLRB reversed the dismissal, holding that the mandatory waiver of any class actions violated the National Labor Relations Act.
The key determination underlying the NLRB’s holding was that employees’ ability to engage in collective and class actions qualifies as “concerted activity” under Section 7 of the NLRA. It was important in this case that the arbitration agreement did not simply bar class arbitration, but went so far as to prohibit class actions of any sort, in any forum. It is also important to note that even employees of non-unionized employers enjoy the protections of Section 7 of the NLRA.
By defining class actions as concerted activity, the NLRB was able to distinguish this case from recent federal case law that seems to compel the opposite result (and which was cited in the original decision to dismiss the complaint). Specifically, the NLRB went to great lengths to distinguish the United States Supreme Court’s recent decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), in which the Court ruled that a California law barring class-action waivers in arbitration agreements conflicted with the Federal Arbitration Act. (See related E-Update here.) In D.R. Horton, the NLRB declared that its ruling did not conflict with the Concepcion decision for several independent reasons. For example, the NLRB reasoned that a requirement that employees’ work-related claims must be resolved through arbitration solely on an individual basis amounts to a requirement that employees forgo a right guaranteed by the NLRA, which protects employees’ rights to “engage in… concerted activities for the purpose of collective bargaining or other mutual aid or protection….” The NLRB also opined that an arbitration agreement that violates employees’ rights under the NLRA is against public policy and therefore, unenforceable. In addition, the Board swept aside the argument that the Federal Arbitration Act permitted class waivers in arbitration agreements, by observing that the Norris-LaGuardia Act, which is the federal law that renders unenforceable any private agreement prohibiting someone from lawfully assisting in a lawsuit arising out of a labor dispute, was passed seven years after the Federal Arbitration Act.
What This Means
This decision is an unexpected and serious complication in the law regarding the enforceability of class action waivers in arbitration agreements. After Concepcion, employers felt empowered to include class action waivers in arbitration agreements. It is now an open question whether class action waivers can be enforced, and employers considering whether to implement an arbitration program including a class action waiver must do so very carefully. Several important issues still must be resolved either through judicial review of the D.R. Horton decision itself, or through continued development of these issues in other cases. Among other things, it will be important for a federal court to consider the conflict of laws issues addressed by the NLRB, and for a court to consider whether the potential violation of the National Labor Relations Act identified in this decision can be addressed by a court in response to an attempt to compel an individual arbitration, as opposed to in an unfair labor practice proceeding brought before the NLRB. Until these and other open issues are resolved, employers should proceed with caution in either seeking to enforce existing class arbitration limitations, or implementing a program involving arbitration agreements containing class action waivers.
Authored by Fred Plevin and Matthew Jedreski of Paul, Plevin, Sullivan & Connaughton LLP