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D.Idaho: Collective Action Waiver Unenforceable Under Section 7, Because It Would Prevent Employees “from Asserting a Substantive Right Critical to National Labor Policy”
Brown v. Citicorp Credit Services, Inc.
This case was before the court on the defendant’s motion to compel arbitration and dismiss the plaintiffs operative (second amended) complaint. Of significance, joining several recent courts, the court considered the effect of the NLRA’s Section 7, as it relates to a purported waiver of employees’ rights to proceed under the FLSA’s collective action mechanism. Reasoning that a waiver of the right to proceed as a collective action basis, “bars [plaintiff] from asserting a substantive right that is critical to national labor policy,” the court held that same was unenforceable.
Discussing prior precedent and explaining that same failed to consider the argument that the NLRA forbids such a waiver the court explained:
Several Circuits have cited the dicta in Gilmer to uphold waivers of the FLSA’s collective action rights—these Circuits hold that the waiver affects only the employee’s procedural right to bring a collective action, not his substantive right to seek recovery under the FLSA for himself, and thus the waiver is valid. Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1378 (11th Cir.2005); Carter v. Countrywide Credit Industries, Inc., 362 F.3d 294, 298 (5th Cir.2004); Adkins v. Labor Ready, Inc., 303 F.3d 496, 503 (4th Cir.2002). The Ninth Circuit has reached the same result but in an unpublished decision that cannot be cited for any purpose.
These cases did not address, however, the issue of whether a waiver of FLSA collective action rights violates the National Labor Relations Act (NLRA). Section 7 of the NLRA vests in employees the right “to engage in … concerted activities for the purpose of … mutual aid or protection.” 29 U.S.C. § 157. The right to engage in concerted action for “mutual aid or protection” includes employees’ efforts to “improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee-employer relationship.” Eastex, Inc. v. NLRB, 437 U.S. 556, 565–566, 98 S.Ct. 2505, 57 L.Ed.2d 428 (1978). Those “channels’ include lawsuits. See Brady v. National Football League, 644 F.3d 661, 673 (8th Cir.2011) (holding that “a lawsuit filed in good faith by a group of employees to achieve more favorable terms or conditions of employment is ‘concerted activity’ under 29 U.S.C. § 157“).
The National Labor Relations Board has recently held that an employee’s lawsuit seeking a collective action under the FLSA is “concerted action” protected by Section 7 of the NLRA. In re D.R. Horton, Inc., 2012 WL 36274 (N.L.R.B. Jan.3, 2012). Although some Section 7 rights can be waived by a union acting on behalf of employees, see Metro. Edison Co. v. NLRB, 460 U.S. 693, 707–08, 103 S.Ct. 1467, 75 L.Ed.2d 387 (1983), it is unlawful for the employer to condition employment on the waiver of employees’ Section 7 rights. Retlaw Broadcasting Co. v. NLRB, 53 F.3d 1002 (9th Cir.1995). That is precisely what Brown alleges happened here.
Under Chevron USA, Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), the Court must defer to the Board’s interpretation of the NLRA if its interpretation is rational and consistent with the Act. Local Joint Executive Bd. of Las Vegas v. NLRB, 657 F.3d 865, 870 (9th Cir.2011). The Board’s interpretation in Horton of Section 7 of the NLRA is rational and consistent with the Act: A collective action seeking recovery of wages for off-the-clock work falls easily within the language of Section 7 protecting “concerted action” brought for the “mutual aid and protection” of the employees.
Holding that it had the power to invalidate the waiver, and doing so, the court reasoned:
Thus, Citicorp’s arbitration agreement waives Brown’s Section 7 rights to bring an FLSA collective action. As discussed, an arbitration agreement may, by the terms of the FAA, be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” See 9 U.S.C. § 2. Do legal grounds exist to revoke an agreement to waive Section 7 rights?
Section 7 rights are protected “not for their own sake but as an instrument of the national labor policy.” Emporium Capwell Co. v. W. Addition Cmty. Org., 420 U.S. 50, 62, 95 S.Ct. 977, 43 L.Ed.2d 12 (1975). Thus, Citicorp’s arbitration agreement does more than merely waive Brown’s right to a procedural remedy; it bars her from asserting a substantive right that is critical to national labor policy. A contract that violates public policy must not be enforced. See United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 42, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987) (citing the “general doctrine, rooted in the common law, that a court may refuse to enforce contracts that violate law or public policy”). Moreover, it is unlawful for the employer to condition employment on the waiver of employees’ Section 7 rights. Retlaw Broadcasting Co. v. NLRB, 53 F.3d 1002 (9th Cir.1995).
For these reasons, the Court finds that under the FAA, there are legal grounds to revoke the arbitration agreement’s waiver of Brown’s right to bring a collective action under the FLSA and a class action under the IWCA. Accordingly, the Court will deny Citicorp’s motion to compel arbitration and to dismiss Brown’s claims.
Given the lack of clarity on this issue (see, e.g., here), and the fact that courts continue to come down on opposite sides of it, this issue is likely to end up at the Supreme Court at some point in the relatively near future. However, this case was certainly a win for employees in the ongoing battle. Stay tuned for further developments.
Click Brown v. Citicorp Credit Services, Inc. to read the entire Memorandum Decision and Order.
8th Cir.: NLRB’s Holding in D.R. Horton Does Not Preclude Enforcement of FLSA Class/Collective Action Waiver
Owen v. Bristol Care, Inc.
While district courts that have considered the issue since the NLRB handed down its decision in D.R. Horton last year have reached divergent opinions on its effect regarding the enforceability of class waivers, the first circuit to consider the issue has rejected D.R. Horton’s applicability in the FLSA context. By way of background, last year the NLRB held that the existence of a collective action waiver in an employment agreement constituted an unfair labor practice, because it improperly restricted the “concerted activity” of employees who are subject to same. Following the decision, courts have reached different conclusions as to whether the NLRB’s decision necessarily rendered such waivers unenforceable in the context of FLSA collective action waivers. In this case, the district court held that the parties arbitration agreement was unenforceable, because it contained such a waiver. However, on appeal, the Eight Circuit reversed, holding that the NLRB’s decision in D.R. Horton did not render the arbitration agreement at issue unenforceable.
Discussing this issue, the Eight Circuit opined that it was not obligated to defer to the National Labor Relations Board’s interpretation of Supreme Court precedent, under Chevron or any other principle:
Finally, in arguing that there is an inherent conflict between the FLSA and the FAA, Owen relies on the NLRB’s recent decision in D.R. Horton, which held a class waiver unenforceable in a similar FLSA challenge based on the NLRB’s conclusion that such a waiver conflicted with the rights protected by Section 7 of the NLRA. 2012 WL 36274, at *2. The NLRB stated that Section 7’s protections of employees’ right to pursue workplace grievances through concerted action includes the right to proceed as a class. Id. However, D.R. Horton carries little persuasive authority in the circumstances presented here. First, the NLRB limited its holding to arbitration agreements barring all protected concerted action. Id. at *16. In contrast, the MAA does not preclude an employee from filing a complaint with an administrative agency such as the Department of Labor (which has jurisdiction over FLSA claims, see 29 U.S.C. § 204), the Equal Employment Opportunity Commission, the NLRB, or any similar administrative body. Cf. Gilmer, 500 U.S. at 28, 111 S.Ct. 1647 (upholding an arbitration agreement that allowed Age Discrimination in Employment Act claimants to pursue their claims before the Equal Employment Opportunity Commission). Further, nothing in the MAA precludes any of these agencies from investigating and, if necessary, filing suit on behalf of a class of employees. Second, even if D.R. Horton addressed the more limited type of class waiver present here, we still would owe no deference to its reasoning. Delock v. Securitas Sec. Servs. USA, –––F.Supp.2d ––––, ––––, No. 4:11–CV–520–DPM, 2012 WL 3150391 (E.D.Ark. Aug. 1, 2012), at *3 (“The Board’s construction of the [NLRA] ‘is entitled to considerable deference and must be upheld if it is reasonable and consistent with the policies of the Act,’ … the Board has no special competence or experience in interpreting the Federal Arbitration Act.” (quoting St. John’s Mercy Health Sys. v. NLRB, 436 F.3d 843, 846 (8th Cir.2006))). The NLRB also attempted to distinguish its conclusion from pro-arbitration Supreme Court decisions such as Concepcion. D.R. Horton, 2012 WL 36274, at *16. This court, however, is “not obligated to defer to [the Board’s] interpretation of Supreme Court precedent under Chevron or any other principle.” Delock, –––F.Supp.2d at ––––, 2012 WL 3150391, at *3 (quoting N.Y. N.Y. LLC v. NLRB, 313 F.3d 585, 590 (D.C.Cir.2002)). Additionally, although no court of appeals has addressed D.R. Horton, nearly all of the district courts to consider the decision have declined to follow it.
The court also opined that there is nothing inherently wrong with a collective action waiver in employment agreements.
Click Owen v. Bristol Care, Inc. to read the entire Opinion.
W.D.Wisc.: Loan Officers Compelled to Arbitrate FLSA Claims, But Class Waiver Stricken In Light of D.R. Horton
Herrington v. Waterstone Mortgage Corp.
In this proposed collective action, the plaintiff sought to pursue a collective action on behalf of defendant’s loan officers, seeking unpaid overtime wages under the FLSA. As discussed here, the defendant moved to to dismiss or stay the case on the ground that plaintiff’s claims were subject to an arbitration agreement. Significantly, while the court enforced the arbitration agreement and remanded the case to arbitration, it struck the purported class waiver portion of the arbitration agreement in light of the recent holding in In re D.R. Horton, Inc.
The specific language at issue was the following language from the parties’ agreement to arbitrate:
“[A]ny dispute between the parties concerning the wages, hours, working conditions, terms, rights, responsibilities or obligations between them or arising out of their employment relationship shall be resolved through binding arbitration in accordance with the rules of the American Arbitration Association applicable to employment claims. Such arbitration may not be joined with or join or include any claims by any persons not party to this Agreement. Except as otherwise set forth herein, the parties will share equally in the cost of arbitration.”
After discussing a litany of cases from the NLRB holding that claims for unpaid wages by workers represent concerted activity, the court discussed the ramifications of the recent D.R. Horton case and held that the class action waiver here was unenforceable. In so doing the court addressed and rejected defendant’s arguments as to why D.R. Horton should not be applied to the case. Specifically, the court rejected defendant’s arguments that: (1) D.R. Horton (and the NLRA) only protect “employees,” and not “former employees” such as plaintiff; (2) an employee can bring about the same changes in the workplace pursuing an individual claim as he or she can pursuing a claim collectively with other employees; and (3) D.R. Horton impermissibly conflicts with AT&T Mobility LLC v. Concepcion.
However, because the court held that the class waiver provision was severable from the arbitration agreement, the court severed the waiver and remanded the case to arbitration, potentially as a collective action.
Click Herrington v. Waterstone Mortgage Corp. to read the entire Opinion and Order.
Thanks to Dan Getman for the heads up on this recent decision.