New Decision Rejects D.R. Horton Reasoning

A new ruling from the Northern District of California, Morvant v. P.F. Chang’s Bistro, Inc. (May 7, 2012), confirms the enforceability of class action waivers despite contrary California law and the National Labor Relations Board’s opinion in D.R. Horton.

First, the court rejected the NLRB’s ruling and reasoning in D.R. Horton, which held that class action waivers are prohibited by the National Labor Relations Act because they interfere with an employee’s right to engage in collective activity.  Second, the court held that the Supreme Court’s recent ruling in AT&T Mobility LLC v. Concepcion overruled the California Supreme Court’s decision in Gentry v. Superior Court, which limited the use of class action waivers in the employment context.  Third, the court held that California Private Attorney General Act (“PAGA”) claims are arbitrable, disagreeing with a few post-Concepcion cases holding that claims in the nature of private attorney general actions evade Concepcion and remain un-arbitrable under California law.

While Concepcion specifically overruled the California Supreme Court’s Discover Bank case, it did not specifically overrule the California Supreme Court’s Gentry case.  Gentry held that class action waivers for overtime claims should not be enforced if a court determines that “class arbitration would be a significantly more effective way of vindicating the rights of affected employees”  after evaluating (1) the size of potential recovery for each class member, (2) the potential for retaliation to members of the class, (3) whether or not absent members of the class may be ill-informed about their rights, and (4) any other obstacles to vindication of the class members’ rights through arbitration.  After Concepcion, there has been a split of authority on whether Gentry survives ConcepcionMorvant now joins the line of cases holding that Gentry does not survive, on the ground that Gentry is an arbitration-specific state law rule that acts as a barrier to arbitration agreements, and is thus preempted by the Federal Arbitration Act (“FAA”).

Morvant also rejected the NLRB’s analysis in D.R. Horton, finding that D.R. Horton’s “reasoning does not overcome the direct, controlling authority holding that arbitration agreements, including class action waivers contained therein, must be enforced according to their terms.”  Furthermore, Morvant rejected the NLRB’s interpretation of and reliance on the Norris-La Guardia Act.  Morvant noted that the NLRB’s analysis of Norris-La Guardia is not entitled to deference because the NLRB is charged with interpreting only the National Labor Relations Act, not Norris-LaGuardia.  Regardless of deference, Morvant concluded that the NLRB’s interpretation of Norris-La Guardia is wrong, and that Norris-La Guardia applies only to contracts which prohibit employees from joining a union, but not to arbitration agreements.  Morvant also rejected the NLRB’s finding that arbitration of non-NLRA claims prevents vindication of employees’ substantive rights, since an agreement to arbitrate only impacts the forum for vindicating such rights.

Finally, Concepcion was crucial to Morvant’s holding that Plaintiffs’ PAGA claims were arbitrable, stating that “[t]he FAA preempts California’s . . . rule that claims for public injunctive relief cannot be arbitrated”.  Morvant illustrates the significant impact Concepcion continues to have on the enforceability of class action waivers and arbitration provisions in employment agreements, and is one of the first decisions to address and reject D.R. Horton’s arguments.