To Arbitrate or Not to Arbitrate? – That Is the Question

Many employers welcomed the Supreme Court’s April, 2011 AT & T Mobility v. Concepcion decision with both open arms and a sense of relief – fatigued as they have been with employment-related class actions – and looking forward to a new day of arbitrating statutory claims on an individual (rather than class) basis. That sense of relief is proving short-lived.

Lacking control of the House of Representatives, a legislative response to AT & T Mobility by the Obama administration has been impractical. Enter stage left, however, the Obama National Labor Relations Board (“NLRB”). Just seven months after the Supreme Court’s AT & T Mobility decision, in January 2012, the Board found in D.R. Horton and Michael Cuda, that requiring employees to waive their right to bring employment-related claims on a class basis as a condition of employment violates the National Labor Relations Act (“NLRA”) – the federal law that it enforces and that protects “concerted” activity by employees. The bottom line – employers who require employees to waive their rights to bring class actions as a condition of employment may be violating federal law.

The Board’s decision in D.R. Horton is now on appeal and whether or not it will survive judicial scrutiny remains to be seen. On May 1, 2012, however, the General Counsel of the NLRB decided to raise the ante even further. In a case involving 24-Hour Fitness, the national fitness club chain, the NLRB General Counsel decided to issue a complaint alleging that 24-Hour Fitness had violated the NLRA simply by asking employees to arbitrate employment disputes on an individualized basis – even when they were allowed to say no. Though this latest case is just in its infancy, it does signal an aggressive anti-arbitration stance by the Obama Administration. Employers considering arbitration programs should keep this in mind.

The Federal Arbitration Act encourages and enforces private agreements to arbitrate. The National Labor Relations Act protects employees’ engaging in “concerted” activity. Two federal laws of equal force are being interpreted in a manner that seems to be at loggerheads – and probably will remain so absent legislative or judicial intervention.

Trial and class action lawyers representing employees view arbitration as a mortal threat to their livelihoods. Business sees arbitration as a means to avoid ruinous litigation expenses and manage risk in its favor. What to do in the meantime? Employers that had hoped that the AT & T Mobility decision might prove an instant panacea for what ails them may have to wait a little longer while the smoke clears in the ongoing battle between various interest groups over arbitration.