Horton hears a death knell

OCTOBER 2017 TERM

In D.R. Horton, Inc., 357 N.L.R.B. 2277 (2012), rev’d in relevant part, D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344 (5th Cir. 2013), the National Labor Relations Board held that Section 7 of the National Labor Relations Act barred employers from including class relief waivers in employment-related arbitration agreements, and that any attempt to do so constituted an unfair labor practice. In October, the U.S. Supreme Court will hear oral argument in a trio of cases — Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and NLRB v. Murphy Oil USA, Inc. — raising the question of whether D.R. Horton is valid.

The parties — and most commentators — are treating the argument as a showdown between Section 7’s protection of “concerted activity,” on the one hand, and the Federal Arbitration Act’s requirement that arbitration agreements be enforced in accordance with their terms. See AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011).

Even if the court is unwilling to hold that the FAA trumps the NLRA, the D.R. Horton rule is still doomed. That is because D.R. Horton is based on a misconstruction of Section 7. If the court is not inclined to hold that FAA invalidates D.R. Horton, the court would still be obliged to either reject D.R. Horton outright as being based on a legally erroneous construction of Section 7, or return the question to the NLRB for reconsideration — a board appointed by a new president and unlikely to follow D.R. Horton’s reasoning.

Section 7 of the NLRA affords employees “the right to ... engage in other concerted activities for the purpose of ... mutual aid or protection.” 29 U.S.C. Section 157. Up until 1975, the NLRB applied a two-step analysis to Section 7. First, it “consider[ed] whether some kind of group action occurred.” Second, if “group action” took place, then it “consider[ed] whether that action was for the purpose of mutual aid or protection.” Meyers Industries, Inc., 268 N.L.R.B. 493, 494 (1984), enforcement denied and remanded sub nom. Prill v. N.L.R.B., 755 F.2d 941 (D.C. Cir. 1985).

In 1975, in Alleluia Cushion Co., Inc., 221 N.L.R.B. 999, 1000 (1975), the NLRB abandoned its traditional two-step analysis and held that it “will find an implied consent” if a single employee acts with the purpose of “mutual aid or protection” and no other employee objects. Over the ensuing years, Alleluia’s departure from board precedent was repeatedly criticized by the U.S. Courts of Appeal, including the 9th Circuit. See, e.g., N.L.R.B. v. Bighorn Beverage, 614 F.2d 1238, 1242 (9th Cir. 1980).

Nine years later, the NLRB held “that the concept of concerted activity first enunciated in Alleluia does not comport with the principles inherent in Section 7 of the Act.” Meyers, 268 N.L.R.B. at 498. The D.C. Circuit remanded Meyers to the board to reconsider its rejection of Alleuia, and the board held that the traditional construction of Section 7 — not Alleluia — was the “construction that is mostly responsive to the central purposes for which the Act was created.” Meyers Industries, Inc., 281 N.L.R.B. 882, 883 (1986), aff’d sub nom. Prill v. N.L.R.B., 835 F.2d 1481 (D.C. Cir. 1987), cert. denied sub nom. Meyers Industries, Inc. v. N.L.R.B., 487 U.S. 1205 (1988).

Fifteen years after the NLRB restored the traditional construction of Section 7, and two years before D.R. Horton was decided, the general counsel of NLRB concluded that a rule like the one eventually adopted by the board in D.R. Horton “would be a return to the concept of ‘constructive concerted activity’ that the Board rejected in Meyers.” Nat’l Lab Rel. Bd., Gen’l Counsel Memorandum No. 10-06, at p. 6 (June 16, 2010). This conclusion is unassailable. The modern Rule 23(b)(3)-type class action is the very antithesis of “concerted activity,” as that term is understood in Meyers — and traditionally — because it is not “engaged in with or on the authority of other employees.” In fact, the modern class action is not even an attempt to reach out to, and secure the consent, of other class members. It is not a mechanism to facilitate joinder of claims — it is a mechanism to permit representation of absent parties. It is not “concerted” — it is virtual.

Rule 23 is based on a law article published by Harry Kalven Jr. and Maurice Rosenfield that was published in 1940. “The Contemporary Function Of The Class Suit,” 8 U. Chi. L. Rev. 684 (1940-41). The Notes of the Advisory Committee on Rules to the 1966 amendments to Rule 23 cites Kalven and Rosenfield as a source of the committee’s criticisms of previous iterations of the rule. Their article is very clear on this point. What they called for — and what the drafters created in Rule 23 — was an alternative to joinder in litigation. Kalven and Rosenfield wrote: “What is needed, then, is something over and above the possibility of joinder. ... There are basically two methods for doing this. The first is to organize the various claimants prior to suit and make them all parties plaintiff to the litigation; this is committee technique. The second is to ignore the various claimants until a decree has been obtained and then to hold open the decree and to permit them upon solicitation under court auspices to participate in the benefits of the decree. The suit in form will be brought initially by any member of the group who, unchosen and unasked and without soliciting consents from the others or organizing them prior to trial, volunteers to assert the rights of all. This is the technique of the class suit.” Id. at 688.

While the Rule 23(b)(3)-type class action does not fit within the Meyers rubric for “concerted activity,” it fits Alleluia’s rubric like a glove. The general counsel was right.

In D.R. Horton the NLRB was simply not honest. It necessarily departed from Meyers and the traditional construction of Section 7, and resurrected Alleluia, but it did not acknowledge that it was doing so. Instead, it cited Meyers for the new rule it was announcing.

By citing Meyers for the rule of Alleluia, the board engaged in a kind of administrative legerdemain. It left employers scratching their heads over the standard for concerted activity in the post-D.R. Horton world. Is it Meyers? Alleluia? Some mixture of the two? If the latter, how does the mixture work? Is it Alleluia for class relief waivers and Meyers for everything else? Is there a longer list of factual settings in which Alleluia should be applied? If so, how is that list defined? Does the board get to choose one or the other depending on its views of the broader purposes of the NLRA? Or its views of sound labor policy? Or whim?

D.R. Horton does not represent sound administrative practice. It is a bedrock principle of administrative law that “[a]n agency in its deliberations is under an obligation to follow, distinguish, or overrule its own precedent.” Local 777, Democratic Union Organizing Committee v. N.L.R.B., 603 F.2d 862, 872 (D.C. Cir. 1978). “[I]t is also a clear tenet of administrative law that if the agency wishes to depart from its consistent precedent it must provide a principled explanation for its change of direction.” National Black Media Coalition v. FCC, 775 F.2d 342, 355 (D.C. Cir. 1985). The board “may not depart sub silentio, from its usual rules of decision to reach a different, unexplained result in a single case.” Shaw’s Supermarkets, Inc. v. N.L.R.B., 884 F.2d 34, 36-37 (1st Cir. 1989). The board flouted this principle when it decided D.R. Horton.

Dr. Seuss’ Horton the Elephant (who heard a Who) said, “So call a big meeting. Get everyone out. Make every Who holler! Make every Who shout! Make every Who scream! If you don’t, every Who is going to end up in a beezle-nut stew!” Dr. Seuss understood what concerted activity really is. Perhaps if the NLRB had re-read their Seuss before deciding D.R. Horton, they would not be in the stew.

Constangy represents an amicus curiae in the D.R. Horton cases discussed in this article and have filed a brief on their behalf before the Supreme Court.