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The 6th U.S. Circuit Court of Appeals recently joined the 7th and 9th circuits in ruling that class-action waivers in arbitration agreements violate the National Labor Relations Act (NLRA).
Alternative Entertainment Inc. (AEI) provides DISH Network installation and services to customers. AEI employed James DeCommer as a field technician from August 2006 until he was fired on Dec. 18, 2014. At the start of his employment, DeCommer was required to sign the AEI Open Door Policy, which states that all employment disputes between employees and AEI must be resolved exclusively through binding arbitration. The agreement also states that a claim may not be arbitrated as a class action, a representative action or a collective action and that a claim may not otherwise be consolidated or joined with the claims of others.
AEI compensated DeCommer and other technicians using compensation units, by which they were paid for home visits and sales according to set unit values. AEI determined each technician's per-unit compensation rate based on the technician's metrics, including factors like the number of jobs completed, how frequently customers reported problems after installations and the technician's customer satisfaction ratings.
While DeCommer was employed at AEI, the company made two changes to the compensation structure. First, AEI added smart home service sales as a metric for all technicians. Smart home sales were additional services, such as mounting a customer's television on the wall or selling accessories to complement a customer's home entertainment system, that technicians provided during service calls. AEI began requiring technicians to meet a minimum dollar amount of smart home service sales to increase their pay per unit. At first, DeCommer excelled at smart home sales, and in 2013 and 2014 he broke company records.
Later, DeCommer determined that he was losing money by spending time on smart home sales instead of going on more service calls, and his smart home sales numbers dropped off significantly. Around this time, DeCommer's supervisor Victor Humphrey claimed, DeCommer told him he would not do smart home sales and talked his customers out of services. DeCommer denied this description of their conversation.
The second change in compensation that AEI made while DeCommer was employed applied to technicians who, like DeCommer, drove their own vehicles. In November or December 2014, AEI announced it would begin compensating technicians who drove their own vehicles based on mileage, not based on units. DeCommer determined that he would "lose a lot of money" under this new system, estimating that the change would cost him $7,000 to $10,000 per year, or about 20 percent of his total compensation.
DeCommer repeatedly voiced his concern about the proposed compensation change, including during an in-person conversation with manager Rob Robinson. DeCommer claimed that he asked Robinson if he knew anything more about the pay change, and Robinson responded that DeCommer should not to talk to any of the other technicians about this. DeCommer was fired shortly after this conversation.
He filed an unfair labor practice charge under the NLRA with the National Labor Relations Board (NLRB), claiming that his firing and the class-action waiver in the AEI Open Door Policy violated the NLRA's protection of employee concerted activity for their mutual aid and benefit. The NLRB general counsel agreed, and DeCommer obtain an order in his favor on all claims from an NLRB administrative law judge (ALJ). The general counsel then filed a petition for enforcement of the order with the 6th Circuit.
The court considered the text of the NLRA and the Federal Arbitration Act (FAA). While the U.S. Supreme Court has underscored in multiple recent decisions that the FAA requires deference toward arbitration agreements, the 6th Circuit ruled that the NLRA's protection of employee concerted activity extends to the ability to file collective forms of litigation such as class actions. Because the NLRA preceded the FAA and the FAA has a savings clause that recognizes certain legal limits to the enforcement arbitration agreements, the court found that the class-action waiver violated the NLRA and thus was unlawful and unenforceable. The 6th Circuit further upheld and enforced the ALJ's finding of wrongful discharge.
[SHRM members-only toolkit: Involuntary Termination of Employment in the United States]
Judge Jeffrey Sutton of the 6th Circuit issued a strongly worded dissent acknowledging the Supreme Court's holdings finding class-action waivers in arbitration agreements to be enforceable despite state law holding to the contrary and attacked the majority's reasoning in finding that the NLRA's protections extend to specific procedural tools in litigation.
National Labor Relations Board v. Alternative Entertainment Inc., 6th Cir., No. 16-1385 (May 26, 2017).
Professional Pointer: Recent U.S. Supreme Court precedent has supported arbitration agreements that preserve the substantive rights of employees even if they remove procedural options that an employee would otherwise have in litigation. Nevertheless, the NLRB and several circuit courts have tried to prevent an increase in such arbitration provisions by interpreting other federal statutes, such as the NLRA, to prohibit these procedural limitations. The Supreme Court will rule on this issue in the context of the NLRA in its upcoming term.
Jeffrey Rhodes is an attorney with Doumar Martin in Arlington, Va.
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