Big companies have been imposing mandatory individual arbitration on consumers and employees for years.NLRB But the corporate motivation behind individual arbitration and its detrimental impact on individuals’ pursuit of justice is just now being brought to light (see below). Meanwhile, the National Labor Relations Board (NLRB), tasked by Congress with enforcing federal labor law, continues defending employees’ right to bring their legal claims on a class-wide basis. Hawks Quindel’s wage and hour lawyers are currently advocating for the Board’s position and for Wisconsin employees in front of the Seventh Circuit Court of Appeals. Stay tuned for the court’s important ruling on whether employees have a protected federal right to take collective legal action.

NY Times Reveals Injustice of Mandatory Individual Arbitration

In a recent three-part series, New York Times investigation reported the proliferation of forced individual arbitration is “a far-reaching power play orchestrated by American corporations.” Specifically, the New York Times detailed a decade-long effort “to block class actions…engineered by a Wall Street-led coalition of credit card companies and retailers, according to interviews with coalition members and court records.” The investigation found that by banning class actions, companies have successfully sidestepped the legal system. Facing the cost of pursuing arbitration alone (where the rules and outcomes overwhelmingly favor the companies), most people decide to simply drop their legal challenge altogether. The result is essentially a “get out of jail free” card for these companies.

While engineered by big banks and retailers, the Times’ series revealed that the arbitration business is now booming in almost all aspects of American’s lives, from obstetricians requiring patients to sign arbitration contracts as a condition of their treatment, to nursing homes pushing wrongful death, medical malpractice, and elder abuse cases out of court and into arbitration.

But the prolific impact of mandatory individual arbitration contracts in the employment arena, where class actions have long been a key tool in vindicating employees’ rights, is particularly startling. Employers in a wide variety of industries have banned class actions—including restaurants like Applebee’s, retailers like Macy’s, and even the NFL. The bans cover employees’ claims for everything from unpaid wages to race and sex discrimination at work.

NLRB Fights to Preserve Employees’ Right to Pursue Class Actions

Against this backdrop, the National Labor Relations Board has been advocating in court for employees’ federal right to pursue class actions. In In re D.R. Horton, Inc. (1), the Board invalidated a mandatory individual arbitration clause upon finding it violated employees’ right under the National Labor Relations Act (“NLRA”) to take collective legal action against their employers. The employer appealed the Board’s ruling, and the Court of Appeals for the Fifth Circuit invoked a pro-arbitration policy to conclude that arbitration contracts trump the federal law guaranteeing employees’ right to collective legal action. (2)

Despite the Fifth Circuit’s opinion, the Board later reaffirmed and strengthened its conclusion that mandatory individual arbitration violates federal labor law, because they strip employees of a right guaranteed by a federal statute. (3) The Board pointed out that even under Supreme Court precedent, such contracts are unenforceable.

Once again, the Fifth Circuit rejected the Board’s reasoning without addressing the NLRA’s substantive guarantee of collective legal action. (4) Nonetheless, the Board has continued to protect employees’ right to collective legal action, undeterred by the Fifth Circuit’s rubber stamp on class action bans in employment contracts. Most recently, in Assignment Staffing Servs., Inc. & Arnella M. Freeman (5), the Board held that an arbitration clause banning class actions still violates the NLRA, even if it contains an onerous opt-out procedure, because it interfered with employees’ ability to exercise the right to collective legal action guaranteed by the NLRA. The Board acknowledged that courts disagreed with its position, but pointed out that “as the agency with the ‘primary responsibility for developing and applying national labor policy’ (in the [Supreme] Court’s words),” the Board “need not apologize for adopting a position so firmly grounded in Board precedent, in Supreme Court decisions, and in federal statutes.”

Hawks Quindel to Argue against Mandatory Individual Arbitration on behalf of Class of Wisconsin Employees in Seventh Circuit

The attorneys at Hawks Quindel recently successfully argued for the invalidation of the provision in Epic Systems Corporation’s arbitration contract that deprived its employees of their right under the NLRA to pursue collective legal action.

Epic immediately appealed the decision striking down its class action ban. Epic has argued the Seventh Circuit should agree with the Fifth Circuit’s conclusion that these types of contracts must be enforced regardless of the rights guaranteed by the NLRA.

Hawks Quindel will present its position to the Seventh Circuit on December 9, seeking to uphold the lower court’s well-reasoned determination that these class action bans violate the NLRA. As the New York Times investigation revealed, at stake is not only the employees’ unpaid overtime wages—but also the access to justice that employers consciously deny to better off their bottom line.

(1) 357 NLRB No. 184 (Jan. 3, 2012)
(2) D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344 (5th Cir. 2013)
(3) Murphy Oil Usa, Inc., 361 NLRB No. 72 (Oct. 28, 2014)
(4) Murphy Oil USA, Inc. v. N.L.R.B., 2015 WL 6457613 (5th Cir. Oct. 26, 2015)
(5) 362 NLRB No. 189 (Aug. 27, 2015)

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