Are We All in This Together? Enforcing Class Arbitration Waivers.

• Author: Kiefer, Ariel Monroe
• Position: NOTE

Cellular Sales of Mo., LLC v. NLRB, 824 F.3d 772 (8th Cir. 2016)

1. INTRODUCTION

   Mandatory class arbitration waivers are increasingly common in employment agreements. (1) It is estimated that forty-three percent of companies have mandatory class arbitration waivers. (2) Employees sign them because they either do not believe they will ever have a major problem with their employer, they believe arbitration is a cheaper and faster method of dispute resolution, or they simply do not read or understand the clause. (3) Employees should question class action waivers because they take away employees' access to the court system and their right to collective action. (4) If employees cannot go to the courts or act collectively to enforce their rights, the country might stop making progress or even lose the progress it is making in protecting workers from discrimination, unjust termination, and unfair wages due to a lack of recourse against illegal actions by employers. (5) For example, unions are able to secure better wages and working conditions for employees than employees are able to secure on their own. Additionally, employees are less likely to win in individual arbitration than they are in an individual lawsuit. (6) If they do win in individual arbitration, they generally recover less than employees who file individual lawsuits. (7) The average damage award in federal courts is $176,000, while the average award in arbitration is only $36,000. (8) Because class action waivers have a heavy impact on employee rights, courts must carefully analyze the legality of the waivers.

   Part II of this Note discusses the facts surrounding the Eighth Circuit's decision in Cellular Sales of Missouri to uphold a class arbitration waiver. Part III of this Note analyzes the approach other federal circuit courts have taken in upholding and striking down class arbitration waivers. Part IV explains the Eighth Circuit's rational for upholding the class arbitration waiver. Finally, Part V discusses why the Eighth Circuit should not have upheld the waiver.

2. FACTS AND HOLDING

   John Bauer worked for Cellular Sales, an authorized Verizon Cellphone retailer. (9) As a condition of employment, the company required employees to sign an agreement mandating that "[a]ll claims, disputes, or controversies... shall be decided by arbitration" and only in "an individual capacity and not as a plaintiff or class member in any purported class, [or] collective action." (10) After Bauer's employment ended, he filed a class action lawsuit against Cellular Sales. (11) He alleged that Cellular Sales violated the Fair Labor Standards Act ("FLSA") (12) in several ways, including failure to pay overtime and improper deductions from his wages. (13) Cellular Sales moved to dismiss the action pursuant to the employment agreement's mandate that claims be settled through individual arbitration. (14) The district court held that the agreement was enforceable and dismissed the case. (15) While the class action suit was pending, Bauer filed a charge with the National Labor Relations Board ("NLRB"). (16)

   In response to Bauer's charge, the NLRB filed a complaint on Bauer's behalf claiming that Cellular Sales' employment agreement violated the National Labor Relations Act ("NLRA"). (17) The charge alleged that Cellular Sales' requirement that employees agree to individual arbitration violated the employees' right to engage in concerted activity. (18) The NLRA gives employees the right to "engage in other concerted activities for the purpose of... mutual aid or protection." (19) Additionally, the NLRA states that it is an "unfair labor practice for an employer to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 157 of this title." (20) Cellular Sales argued that the NLRB's D.R. Horton decision, which held that agreements prohibiting class arbitration were invalid, should not be followed in this case because the holding was contrary to Supreme Court of the United States precedent and the Federal Arbitration Act ("FAA"). (21) Cellular Sales argued that the Supreme Court's precedent in American Express Company (22) showing deference to arbitration agreements, should control. (23) Last, Cellular Sales argued that the FAA mandated that the agreement be enforced. (24)

   An administrative law judge ("ALJ") ruled in favor of the NLRB.25 The ALJ found that the NLRB ruling in D.R. Horton was controlling in this case. (26) The ALJ also found that filing a class action was a concerted activity within the scope of Section 7 of the NLRA. (27) Although only one employee filed the initial suit, filing the lawsuit was concerted activity because "it [was] engaged in with the object of initiating or inducing group action." (28) Therefore, mandating that employees waive their rights to class-wide action as a condition of employment impaired employees' Section 7 rights and violated Section 8(a)(1) of the NLRA. (29) Additionally, Cellular Sales violated Section 8(a)(1) when it filed a motion to compel arbitration in response to Bauer's class action lawsuit because it restricted his right to engage in concerted activity. (30) The ALJ ordered that Cellular Sales revise or rescind the agreement and give written notice of the change to its employees. (31) Cellular Sales filed a motion to reopen the record with the NLRB, but the NLRB upheld the prior ruling. (32)

   Cellular Sales appealed the NLRB's ruling to the Eighth Circuit. (33) Cellular Sales argued that the NLRB's decision was wrong because it relied on two prior Board decisions, D.R. Horton and Murphy Oil, that were subsequently reversed by the Fifth Circuit. (34) The NLRB asked that the court reconsider its stance on class waivers in arbitration agreements. (35) The Eighth Circuit overturned the NLRB's administrative decision by holding that requiring employees to resolve disputes exclusively through individual arbitration does not violate the NLRA. (36) This means that companies can require employees to relinquish their right to file individual lawsuits, class action lawsuits, and class arbitrations.

3. LEGAL BACKGROUND

   This Part discusses the history and purpose of the FAA, the NLRA, and individual arbitration agreements. It then analyzes recent federal circuit decisions both upholding and striking down employment agreements with class arbitration waivers.

   The FAA was enacted in 1925 in response to judges' negative treatment of arbitration agreements. (37) Its purpose was to ensure that arbitration agreements were enforced according to their terms and to ensure that courts did not treat them with contempt. (38) It states that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (39) The FAA places arbitration agreements on equal footing with other contractual agreements. (40) Accordingly, the FAA contains a saving clause allowing arbitration agreements to be invalidated for the same reasons traditional contracts are invalidated, such as unconscion-ability and illegality. (41)

   The NLRA was enacted in 1935 with the purpose of decreasing the power differential between employers and employees. (42) The NLRA gives employees the right to "engage in other concerted activities for the purpose of... mutual aid or protection." (43) The NLRA strengthens an employee's right to concerted action in Section 8 by stating that it is an "unfair labor practice for an employer ... to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 157 of this title." (44)

   In AT&T Mobility LLC v. Concepcion, the Supreme Court of the United States held that arbitration agreements with class action waivers are enforceable. (45) The Court preempted state case law prohibiting class arbitration waivers because "[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA." (46) The Court reasoned that class arbitration interferes with the fundamental benefits of arbitration because it requires procedural formality, makes the process slower, increases the cost, and increases the risk to defendants because there are fewer grounds for appeals. (47)

   However, courts have treated class arbitration waivers in employment contracts differently. Several United States circuit courts have heard cases regarding the enforceability of collective action waivers in employment contracts, but the circuits are split in their holdings. (48) Courts upholding the collective action waivers rely on the FAA and the Supreme Court's favorable treatment of mandatory arbitration clauses. (49) Courts that do not uphold collective action waivers rely on Sections 7 and 8 of the NLRA, the NLRB's interpretation of the NLRA, and the "saving clause" in the FAA. (50)

   1. Courts That Enforce Collective Arbitration Waivers

      The Fifth Circuit enforced a class arbitration waiver determining that the right to class arbitration was procedural, not substantive. (51) This distinction is important because while a substantive right cannot be waived by an arbitration agreement, a procedural right can be. (52) The court supported its proposition by analogizing it to the class action mechanism under the Federal Rules of Civil Procedure, which is a procedural right. (53) The Fifth Circuit also found that class procedures listed in employment statutes, such as the Age Discrimination in Employment Act ("ADEA") and the FLSA, were procedural rights. (54)

      The court focused on the FAA rather than the NLRA. (55) The FAA prevents arbitration clauses from being disfavored by the courts, (56) and the NLRA protects employees' right to collective action. (57) The court reasoned that the NLRB's interpretation that the NLRA required a class procedure to be available to employees was facially neutral but that interpretation effectively...