Jul 20, 2012 - 3:12pm

California Court Takes NLRB to the Woodshed on "D.R. Horton" Decision

Senior Vice President, Employment Policy Division


On January 3, 2012, the National Labor Relations Board (NLRB) issued the D.R. Horton decision, in which it ruled that requiring workers to sign arbitration agreements preventing them from joining together to pursue employment-related legal claims in any forum, whether in arbitration or in court, violated Section 7 of the National Labor Relations Act (NLRA).  In other words, employers could not require workers to submit disputes to arbitration rather than pursue class action lawsuits.

The decision was roundly criticized by employers, and was a cause of grave concern because it could force disputes that could be easily and equitably settled by an arbitrator into the unpredictable and potentially costly forum of class action litigation.  At the time the Board issued its decision, arguments were made that D.R. Horton conflicted with the Federal Arbitration Act (FAA), that the NLRB was asserting the primacy of its statute over other federal laws with no basis, and that it was exceeding its statutory authority (see here for a summation of these arguments).

Several courts have already rejected the Board’s conclusions in D.R. Horton, and on July 18, the California Court of Appeal, First Appellate District, joined this growing parade in Lorena Nelson v. Legacy Partners Residential, Inc

In this case, Lorena Nelson, who had been employed by Legacy Partners (LPI) as a property manager, alleged multiple violations of the California Labor Code.  Nelson attempted to pursue these allegations as a class action on behalf of all current and former California-based property managers who had worked for LPI at any time for the four years preceding her filing of the suit and the date final judgment was rendered.  LPI pointed out that Nelson had signed an agreement that any “claim, dispute, or controversy” that would require going to court would be settled by arbitration under the FAA.

Although the D.R. Horton decision was issued after Nelson’s complaint was filed, she raised the NLRB decision in a post-January 6 reply brief, arguing that it meant she could not be precluded from pursuing class action litigation.  The California Court of Appeal carefully considered whether D.R. Horton should, in fact, require that a class action be allowed to proceed.  The Court’s conclusions could not have made for happy reading over at the NLRB.

First, the Court concluded that it was under no obligation to follow the NLRB’s decision:

• “For a number of reasons, we decline to follow Horton here.  Since we are not bound by the decisions of lower federal courts on questions of federal law, it follows we are also not bound by federal administrative interpretations. …Although we may nonetheless consider the Horton decision for whatever persuasive value it has, several factors counsel caution in doing so.”  (emphasis added)

Among those cautionary factors, the Court cited the fact that “Only two members subscribed” to the Board’s theory in D.R. Horton.  But going much further, the Court essentially told the Board to keep its nose out of areas where it doesn’t belong:

• The subject matter of the decision—the interplay of class action litigation, the FAA, and section 7 of the NLRA—falls well outside the Board’s core expertise in collective bargaining.”  (emphasis added)

The Court then all but accused the NLRB of making up law as it goes along and overstepping its bounds.

• “The Board’s decision reflects a novel interpretation of Section 7 and the FAA.  It cites no prior legislative expression, or judicial or administrative precedent suggesting class action litigation constitutes a ‘concerted activit[y] for the purpose of…other mutual aid or protection’ or that the policy of the FAA favoring arbitration must yield to the NLRA in the manner it proposes.  In fact, before Horton was decided, two federal district courts had specifically rejected arguments that class action waivers in the labor context violated Section 7 of the NLRA.”  (emphasis added)

In what must be particularly distressing for the Democratic members of the Board, the Court implied that the NLRB doesn’t understand the statute, or the reach of the statute, it is charged with enforcing.

• “As illustrated in the United States Supreme Court’s decision in CompuCredit Corporation v. Greenwood…a federal statute will not be found to override an arbitration agreement under the FAA unless such a congressional intent can be shown with clarity in the statute’s language or legislative history. … As the district court found in Jasso, ‘there is no language in the NLRA (or in the related Norris-LaGuardia Act) demonstrating that Congress intended the employee concerted action rights therein to override the mandate of the FAA.

“The Second District Court of Appeal in Iskanian has rejected Horton based on the CompuCredit analysis and because the decision goes well beyond the scope of the NLRB’s administrative expertise by interpreting a statute — the FAA — that the agency is not charged with enforcing.”

The California Court of Appeal has neatly summarized much of the criticism levied against the NLRB over the past three years:  that it has lost sight of its proper mandate, that it is pushing well beyond the boundaries of its authority, and that it is issuing decisions not supported by past precedent and the plain meaning of the NLRA.  Further embarrassment might be avoided if the Board would decide to listen.

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Glenn Spencer Headshot
Senior Vice President, Employment Policy Division

Glenn Spencer is senior vice president of the Employment Policy division at the U.S. Chamber of Commerce.