NLRB Contradicts Federal Court, Orders Hilton Hotels to Abandon Its Arbitration Agreement

To the United States Supreme Court, there is no question. Courts must enforce arbitration agreements according to their terms. Thus, an employee who agrees to arbitrate all claims individually cannot later file a class action lawsuit against his employer. See AT&T Mobility, LLC v. Conception, 563 U.S. 321 (2011).

The National Labor Relations Board (“NLRB”) disagrees. To the NLRB, class litigation is a form of “concerted activity,” and “concerted activity” is a protected right. See National Labor Relations Act (“NLRA”), Section 7, at 29 U.S. Code § 157. As a result, the NLRB has ordered Hilton Hotels to abandon an arbitration agreement that a federal court previously ruled was enforceable.

Nelson Chico was an employee of the Kyoto Grand Hotel in Los Angeles, California. In 2004, he filed a class action lawsuit against his employers. Chico alleged that the hotel owners violated the law by failing to pay overtime and failing to provide adequate meal and rest breaks.

Chico had signed an arbitration agreement when he accepted the job. Thus, the defendants moved to compel arbitration. Further, the agreement contained no mention of class action claims. Accordingly, defendants asked the court to require Chico to arbitrate individually. The court granted the defendants’ motion on October 7, 2014, and a copy of the order is available here.

Thereafter, Chico filed an Unfair Labor Practice (“ULP”) claim with the NLRB. He argued that NLRA Section 7 protects his right to engage in concerted activity, including class litigation. By forcing him to arbitrate individually, Chico claimed that the defendants violated his Section 7 rights.

Chico previously made the same argument to the federal court, but the judge rejected it, as follows:

Relying on the National Labor Relations Board’s decision in In re D.R. Horton, Inc., 357 NLRB No. 184 (2012), Plaintiff contends that requiring him to arbitrate his claims on an individual basis violates sections 7 and 8 of the National Labor Relations Act (“NLRA”), which protect concerted employee activities. However, “the two courts of appeals, and the overwhelming majority of the district courts, to have considered the issue have determined that they should not defer to the NLRB’s decision in D.R. Horton on the ground that it conflicts with the explicit pronouncements of the Supreme Court concerning the policies undergirding the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16.” Richards v. Ernst & Young, LLP, 744 F.3d 1072, 1075 (9th Cir. 2013) (citing cases). Indeed, “every district court in this circuit to consider [D.R. Horton] has declined to follow it.” Miguel v. JPMorgan Chase Bank, N.A., 2013 WL 452418, at *9 (C.D. Cal. Feb. 5, 2014). Recently, the California Supreme Court considered this issue, and also concluded “in light of the FAA’s liberal federal policy favoring arbitration, that sections 7 and 8 of the NLRA do not represent a contrary congressional command overriding the FAA’s mandate.” Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348, 373 (2014) (quotations and citations omitted). The Court agrees with the majority of courts that have considered the issue, and concludes that the NLRA does not prohibit the individual arbitration of Plaintiff’s claims.

See Order Granting the RIM Defendants’ Petition to Compel Arbitration, Chico v. Hilton Worldwide, Inc., et al., Civ. Act. No. 14-cv-5750-JFW (C.D. Cal. Oct. 7, 2014).

Eventually, Chico settled his claims against the defendants. However, the NLRB refused to dismiss his ULP charge. On June 15, 2016, Administrative Law Judge Jeffrey D. Wedekind ruled that the NLRB was not bound by the court’s ruling on the arbitration agreement. Thus, opposite of the federal court, Judge Wedekind ruled that the defendants violated Chico’s Section 7 rights, and he he ordered the defendants to stop using the arbitration agreement immediately. Further, he ordered the defendants to reimburse Chico the attorney’s fees he spent opposing the motion to compel arbitration before the federal court, even though Chico had lost. A copy of ALJ Wedekind’s ULP Decision (Rim Hospitality, Case No. 21–CA–137250) is available here.

In his ruling, Judge Wedekind rejected the holdings of numerous federal courts that employers do not violate Section 7 by using arbitration agreements containing class waivers. Instead, he adopted the Section 7 position advocated by the NLRB, and he explained that NLRB judges would continue to do so until the Board’s position was “overruled by the Supreme Court.”

If the NLRB continues to disregard federal court rulings, the Supreme Court will eventually get involved. Hopefully for employers, the Court will provide clarity sooner rather than later. Until then, employers using arbitration agreements to prevent class actions will risk defending ULP charges before the NLRB.

If you have questions about your company’s arbitration agreement, please feel free to contact us at (470) 839-9300, or beau@freedhoward.com.

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