D.R. Horton Survives Italian Colors

There was some question whether the National Labor Relations Board’s landmark D.R. Horton, 357 NLRB No. 184 (Jan. 3, 2012) decision would survive American Express v. Italian Colors Rest., 133 S. Ct. 2304 (2013), which narrowed the “effective vindication” limitation to the Federal Arbitration Act. However, the Administrative Law Judge deciding a Board charge in Cellular Sales of Missouri, LLC, held that D.R. Horton’s holding is unaltered by American Express:

I find that the Supreme Court does not expressly overrule the finding in D.R. Horton. The case at issue is distinguishable because the arbitration agreement precludes employees from exercising their substantive rights protected by Section 7 of the [National Labor Relations] Act. The NLRA “protects employees’ ability to join together to pursue workplace grievances, including through litigation. Id., slip op. at 2. By initiating arbitration on a classwide basis and filing a class action lawsuit in district court, both Bauer and the charging party in D.R. Horton were engaging in conduct that the Board has noted is “not peripheral but central to the Act’s purposes.” D.R. Horton, supra at 4. The Board went on to find that there was no conflict between the NLRA and the FAA “[s]o long as the employer leaves open a judicial forum for class and collective claims, employees’ NLRA rights are preserved without requiring the availability of class-wide arbitration.” D.R. Horton, slip op. at 16. The agreement in this matter does not provide for such an option.

The claim brought by the merchants in American Express Co., is distinguishable in that it was for a violation of antitrust laws. Unlike D.R. Horton and the case at issue, the merchants were alleging not that they were precluded from pursuing their claim but rather the cost to do so individually would be prohibitive. Id. at 2309. However, the Supreme Court noted “antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” American Express Co., supra at 2309.

Cellular Sales, slip op. at 7-8.

This decision comports with a recent administrative decision in Ralph’s Grocery Co., where D.R. Horton was harmonized with American Express. (This decision arose from a charge brought by Terri Brown, who is also the plaintiff in Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2011) and is represented by Capstone Law APC in both state court and before the Board.)

Although D.R. Horton’s impact has thus far been limited, its reasoning is very powerful and may yet prove persuasive to higher courts. The D.R. Horton Board explained, in considerable detail, that an employee’s right to collective legal action, including filing of putative class actions, has long been considered a “concerted activity”— the core right protected by the NLRA and the Norris-LaGuardia Act (NLA). The Board found that a forced waiver of that right, whether in an ordinary agreement or tied to an arbitration clause — is an unfair labor practice under Section 8(a) of the NLRA.

In a particularly well-reasoned section, D.R. Horton harmonized its decision with the FAA, explaining that the Supreme Court has long held that an arbitration agreement cannot be enforced if it extinguishes a core substantive right. Also, the NLA, enacted in 1932, expressly supersedes any conflicting prior-enacted law, which would include the FAA, which was signed into law in 1925.

Thus far, employees taking collective action against their employer in the face of a mandatory class action waiver have had much greater success filing charges with the Board than by invoking D.R. Horton in court. In refusing to accept D.R. Horton, many courts have relied on an inapposite case called CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), where the Court held that a claim under the Credit Repair Organization Act cannot be exempted from arbitration absent an explicit congressional command.

This appears to reflect a common confusion between arbitrability and the effect of an illegal waiver. D.R. Horton did not hold that employment class actions are exempt from arbitration, since a statutory claim can be exempt from arbitration only when the statutory language expressly provides. Rather, the Board held that a mandatory waiver of a core federal substantive right is not enforceable, whether the illegal waiver is tied to an arbitration clause or not. D.R. Horton’s reasoning is entirely consistent with American Express, which stated that an arbitration agreement cannot be enforced if it “forbid[s] the assertion of certain statutory rights.” American Express, 133 S. Ct. at 2310. As these administrative decisions move forward, courts should take a second look at the well-reasoned D.R. Horton and look to balance core substantive rights protected by the NLRA with the FAA.