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Fifth Circuit Finds that Class Waivers in Mandatory Arbitration Agreements Do Not Violate the NLRA, but ALJ Expands the NLRB’s D.R. Horton Ruling

D.R. Horton, Inc. v. National Labor Relations Board & Leslie's Poolmart Inc. and Keith Cunningham

Decision: The US Court of Appeals for the Fifth Circuit rejected the National Labor Relations Board’s (“NLRB” or “Board”) position that homebuilder D.R. Horton Inc. interfered with its employees' labor law rights by requiring its employees to enter a mandatory arbitration agreement that waived their ability to participate in class or collective actions. According to the Fifth Circuit, that position is inconsistent with the Federal Arbitration Act (“FAA”).

First, the court held that “[r]equiring a class mechanism is an actual impediment to arbitration and violates the FAA.” Next, the court rejected the NLRB’s argument that the National Labor Relations Act’s (“NLRA”) protection of employees’ rights to engage in “concerted activity” impliedly overrides the FAA, finding that the NLRA neither contains explicit language evidencing Congress’ intent to do so nor provides employees with a substantive right to class actions that would trump application of the FAA. Weeks later, however, an administrative law judge (“ALJ”) at the NLRB applied the Board’s D.R. Horton ruling to find that even arbitration agreements that do not explicitly prohibit class or collective actions violate the NLRA if they have the practical effect of doing so. The ALJ determined she was bound by the NLRB’s precedent in D.R. Horton and that the employer, by filing a motion to compel arbitration of the plaintiff’s individual claims and to dismiss his class allegations, demonstrated that it intended for the arbitration agreement to bar class actions and therefore violated the NLRA.

Impact: The Fifth Circuit joined the Second, Eighth and Ninth Circuit Courts of Appeal in eliminating what would have been a significant obstacle to resolving employer-employee disputes through arbitration, which a growing body of evidence confirms is beneficial to both employers and employees because of its reduced cost and shorter time to resolution as compared to pursuing resolution through the courts. It is important to note, however, that the validity under the NLRA of class waivers in mandatory arbitration agreements between employers and employees remains an open question in other appellate circuits. Additionally, in the NLRB’s view, these class waivers are still violative of the NLRA. The NLRB has not yet indicated whether it will seek Supreme Court review of the Fifth Circuit’s ruling in D.R. Horton, nor has it weighed in on the ALJ’s application of its D.R. Horton ruling to arbitration agreements that do not explicitly bar class or collective actions.

Ninth Circuit Approves $697,971 Attorneys’ Fees Award where Damage Award is only $27,280

Decision: In Muniz v. UPS, the plaintiff sued for age discrimination, gender discrimination, retaliation and negligent supervision. Before trial, all claims but plaintiff’s gender discrimination claim had been dismissed, and the jury awarded the plaintiff only $27,280 in damages, which was a fraction of the $700,000 award requested at trial. On appeal, UPS argued, among other things, that the attorneys’ fees award should have been reduced to a greater extent because of the plaintiff’s limited success, but the Ninth Circuit rejected that argument because California law does not require the district court to reduce the attorneys’ fees award even when there is a large disparity between the two awards.

Impact: As highlighted by this case, California employers face significant risks when terminating employees or making other personnel decisions, even where the personnel decision causes little economic impact. As such, employers should consider consulting counsel before taking potentially risky personnel decisions. In assessing risk, employers will want to evaluate potential damages as well as potential attorneys’ fees awards at the outset, particularly now that California courts have approved attorneys’ fees awards in excess of 25 times underlying damages

The Trend Continues: Another Reversal of a California Trial Court’s Certification Denial in a Wage and Hour Class Action

Decision: In Williams v. Superior Court of Los Angeles (Allstate Insurance Company), a non-exempt automobile field adjuster sought to represent a class of employees in California state court for damages based on an alleged company-wide policy of “off the clock” work. Plaintiffs claimed that the adjusters were required to perform work before the start of their first field appointment and after their last field appointment but were directed not to record such work. Allstate did not pay the employees for any work that was not recorded. The tasks that field adjusters claimed they were required to perform without recording their time included logging onto their work computers, downloading their assignments, making courtesy calls to auto repair shops and car owners to confirm appointments, checking their voice mail and traveling to and from their first and last appointments of the day.

At first, the trial court certified an “off-the-clock” class of non-exempt Allstate field adjusters, but later accepted Allstate’s argument that the class should be decertified under the principles set forth by the Supreme Court in Wal-Mart Stores v. Dukes, 131 S.Ct. 2541 (2011). The Court of Appeals permitted an interlocutory appeal and found that the trial court had abused its discretion in decertifying the claim. The Court of Appeals criticized the lower court for relying on a portion of Dukes dealing with injunctive relief, when the Allstate plaintiffs were seeking monetary damages, and for concluding that the Allstate case did not pose a common question.

According to the Court of Appeals, the plaintiffs’ claim that Allstate maintained a policy of requiring “off the clock” work was in itself a common question that made class treatment more efficient. In addition, the Court of Appeals declared, without really explaining, that the factual issues in Allstate were different from Dukes because Dukes depended on the proof of the subjective intent of thousands of individual supervisors. Finally, the Court of Appeals rejected the argument that the case would require “trial by formula” as in Dukes, stating that this has little if any impact on the certification decision in the wage and hour context. The Court of Appeals directed the trial court to certify the claim.

Impact: This case is the latest in a string of recent California Court of Appeal decisions to reverse a trial court’s denial of class certification. Courts and plaintiffs are finding ways to distinguish Dukes, and the California Court of Appeals seems to be particularly skeptical of applying Dukes to deny certification of wage and hour classes. The decision reinforces that the focus for practitioners seeking a denial of class certification decision should be to persuade the court that there is no common policy at issue. To limit the risk of wage and hour class action claims, California employers should continue to prioritize properly tracking all of their employees’ time and providing breaks and overtime pay in accordance with California law.

Second Circuit Holds that Parent Company May Be Single Employer with Subsidiary for Purposes of WARN Act Liability

Guippone v. BH S&B Holdings LLC

Decision: BH S&B Holdings LLC (“Holdings”), a subsidiary of BHY S&B HoldCo LLC (“HoldCo”), purchased the assets of bankrupt retailer Steve & Barry’s in 2008. Later that year, as a result of the economic downturn, Holdings implemented a staff reduction. One of the laid-off workers brought a lawsuit against Holdings and HoldCo, alleging violations of the Worker Adjustment and Retraining Notification (“WARN”) Act, which generally requires employers to provide at least 60 days’ notice to employees in the event of a mass layoff.

The district court granted summary judgment to HoldCo, agreeing that HoldCo was not a single employer with Holdings. The Second Circuit reversed that decision and adopted the Labor Department’s list of five, non-exclusive factors for determining when a single employer relationship exists: common ownership; common directors and/or officers; de facto exercise of control; unity of personnel policies emanating from a common source; and the dependence of operations.

Analyzing these factors, the Second Circuit found a triable factual dispute regarding HoldCo’s de facto control over Holdings. The evidence showed that Holdings did not have its own board of directors, HoldCo’s board selected Holdings’ management and negotiated its financing, and the HoldCo board approved the resolution directing Holdings to institute layoffs. “Authorizing layoffs is not just a prerogative of ownership—it’s a function of being an employer, especially where, as here, HoldCo was the sole member and manager of Holdings, and the HoldCo board operated as Holdings’ board,” the court wrote. “There is sufficient evidence in the record to allow a jury to conclude that Holdings was not free to implement its own decisions, and that the layoffs were, in fact, directed by HoldCo.”

Impact: This case serves as an important reminder to corporate parents to maintain corporate formalities and ensure that their subsidiaries have separate boards of directors and remain in control of personnel decisions in order to avoid joint liability under employment-related statutes, including the WARN Act. It also confirms that courts in the Second Circuit will evaluate the issue of whether a parent and subsidiary constitute a single employer by using the Labor Department’s factors.

If you have any questions about the matters addressed in this issue, please contact the author Lori Zahalka, or the US Employment practice chairs Marcia Goodman or John Zaimes.