Fifth Circuit Upholds Legality of Class Action Waivers in Arbitration Agreements
Last week the Fifth Circuit Court of Appeals held that the National Labor Relations Act (NLRA) does not prohibit arbitration agreements waiving the right of employees to pursue employment claims on a class or collective basis. The court’s decision rejected last year’s ruling by the National Labor Relations Board (NLRB) that home builder D.R. Horton violated the NLRA by requiring its employees to sign such agreements. The case is D.R. Horton, Inc. v. NLRB, 5th Cir., No. 12-60031, 12/3/13.
The underlying NLRB decision invalidating class and collective action waivers was issued on January 3, 2012. The NLRB held that class actions qualify as “concerted activities for the purpose of collective bargaining or other mutual aid or protection….” The NLRB reasoned that because the NLRA protects the right of employees to engage in such “concerted activities,” D.R. Horton violated by NLRA by requiring employees to waive their right to bring class actions.
In rejecting the NLRB’s analysis, the Fifth Circuit noted that while the NLRA protects concerted activity, there is nothing in the NLRA explicitly guaranteeing the right of employees to bring class actions. Further, the court found no evidence that Congress intended the NLRA to override the Federal Arbitration Act (FAA), which generally mandates that arbitration agreements be enforced according to their terms.
Although many courts throughout the country have refused to follow the NLRB’s D.R. Horton analysis, the Fifth Circuit’s reversal of the actual D.R. Horton decision should seriously undermine the argument that the NLRA prohibits class action waivers in arbitration agreements. The NLRB may no longer follow its own D.R. Horton analysis within the Fifth Circuit (Louisiana, Mississippi and Texas), and federal courts in other circuits have already displayed disfavor towards it. The NLRB may simply abandon its D.R. Horton analysis, or it could petition the United States Supreme Court to review the Fifth Circuit’s decision. Recent United States Supreme Court decisions, including AT&T Mobility v. Concepcion, have championed the FAA’s strong policy in favor of arbitration agreements—including agreements with class action waivers—so the NLRB is unlikely to find relief there.
Although this decision seriously undermines one argument against class action waivers, there are others that remain unsettled. Employers considering whether to implement an arbitration program that includes class and collective action waivers should proceed with caution.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
Supreme Court to Decide if Offer of Judgment Moots Collective Action
The Supreme Court has agreed to decide whether a defendant in a Fair Labor Standards Act case can avoid a collective action by offering full relief to the plaintiff before other employees join the case.
The practice in FLSA cases is for plaintiffs’ lawyers to file a lawsuit on behalf of the original named plaintiff, and then seek to expand the case into a collective action by issuing notices of right to opt-in to other similarly situated employees. To avoid the prospect of a collective action, employers sometimes choose to make an offer of full relief to the named plaintiff early in the case. They then argue that the case should be dismissed as moot, leaving no pending lawsuit for other employees to join.
This approach has received a mixed reception in the federal courts of appeals. The Ninth and Eleventh Circuits held that a case should be dismissed when the named plaintiffs’ claims have been resolved. The Third and Fifth Circuits have held that a collective action, like a class action under a Rule 23, takes on a life of its own when the case is filed and does not become moot when the named plaintiff’s claim is resolved. The arguments involve some arcane issues involving the distinction between collective actions and class actions and the “case or controversy” requirement under Article III of the Constitution.
In the case that the Supreme Court agreed to hear, the defendant company operates over 200 nursing homes and other facilities. The plaintiff worked for one of those homes for only several months. She filed suit claiming that the company violated the FLSA by making automatic deductions for meal breaks. To make the case go away quickly, the company responded to the court complaint by making an offer of judgment for $7,500 in alleged unpaid wages and liquidated damages, plus attorneys’ fees, costs and expenses. The district court granted the company’s motion to dismiss the case as moot, but the Third Circuit reversed, holding that the company could not preempt a collective action by “picking off” the named plaintiff.
The Supreme Court will hear oral argument in the case, Genesis Healthcare Corporation v. Symczyk, in its term starting October 2012.
Houston Courts Deny Conditional Certification in Two FLSA Collective Actions
In Richardson v. Wells Fargo Bank, N.A. (S.D. Tex., February 2, 2012) and Andel v. Patterson-UTI Drilling Co., LLC, (S.D. Tex., February 15, 2012), the Houston Federal Court sent a clear message to seekers of conditional certification in FLSA collective actions. Namely, it will take much more than an employee’s belief to meet the criteria that there is either a “nationwide policy or plan” or that they are all “similarly situated” to gain certification.
Both cases were heard by the District Court at the initial conditional certification stage with varying degrees of discovery. Rejecting the applicability of Wal-Mart Stores, Inc. v. Dukes, (S.Ct. 2011), and paying homage to the conflict prevalent in the Fifth Circuit concerning which standard to apply, the Court in both instances took pains to note that it was applying the more “lenient standard” of Lusardi v. Xerox Corp. (D.N.J. 1987). This being said, the leniency ended there.
In Richardson, the Court was faced with a number of bankers who we claiming they were forced to work odd hours off the clock under what they contended was a nationwide policy or plan. The Court noted that Wells Fargo had “clear written policies mandating accurate recordkeeping of employee’s time and payment of overtime when working outside scheduled [times].” Of course, all employees had nearly identical affidavits wherein they all expressed their belief that certain bank managers expected them to work off the clock. However, the Court was not persuaded. While there were instances of rogue conduct or misinterpretations by certain bank managers, there was no proof that the managers consistently failed to follow the bank’s written policy (or that the bank knew of and adopted the inappropriate conduct). Given this, the Court rejected conditional certification.
The Court reached a similar result in Andel. In that case, the plaintiffs were welders who were all claiming misclassification as independent contractors. Applying the “economic realities” test of Thibault v. Bellsouth Telecomms., Inc. (5th Cir. 2010), the Court stated that whether an individual is an employee or independent contractor is “highly dependent on the particular situation presented, and this requires an intensive factual analysis.” Consequently, the Court ruled that “this individualized analysis precludes certification.”
The lessons to take from these cases are clear. First, all companies should review their written policies or plans to make certain that they dovetail with FLSA. Second, defense attorneys should press the Court to look behind any self-serving declaration of plaintiffs to determine if there is really a policy or plan that replaces written policies. Finally, a forceful objection to conditional certification can be made in any case where misclassification is alleged.
Bryant S. Banes, Managing Shareholder, Neel, Hooper & Banes, P.C., Houston, Texas
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