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Delaware Bankruptcy Court Refuses to Enforce an Employee Arbitration Agreement with a Class Action Waiver Despite Its Opt-out Provision

Chan v. Fresh & Easy, LLC (In Fresh & Easy, LLC), No. 15-51897 (BLS), 2016 WL 5922292 (Bankr. D. Del. Oct. 11, 2016)

In this motion to compel arbitration Opinion, the Bankruptcy Court for the District of Delaware ruled on two issues of first impression in Delaware:  (i) whether a class action waiver provision in an arbitration agreement violates the National Labor Relations Act (the “NLRA”); and if so, (ii) whether the agreement remains enforceable if it allows an employee to opt-out.  The Court found that the class action waiver was unenforceable because it violated the NLRA.  The Court then held that the opt-out provision in the agreement did not save the class action waiver.

Diana Chan (“Chan”) was an employee of Fresh & Easy, LLC (the “Debtor”), a grocery store chain, until her employment was terminated on the day that the Debtor filed for bankruptcy.  Prior to her termination, Chan entered into an arbitration agreement and waived her right to bring a class action against the Debtor.  The agreement also let Chan opt out of the agreement within thirty days.  After the petition date, Chan filed a complaint on behalf of herself and other similarly situated former employees against the Debtor, among others, alleging violations of the Worker Adjustment and Retraining Notification Act and its California counterpart.  Chan sought class certification and requested that she be designated as the class representative.

The Debtor moved to compel arbitration.  Chan argued that the agreement was unenforceable under the NLRA, which provides that an employer may not interfere with an employee’s right to engage in certain “concerted activities” for the purpose of protection.  The National Labor Relations Board (the “Board”) has interpreted “concerted activities” to include filing class actions, and Chan noted that the Seventh Circuit recently deferred to the Board’s interpretation in Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016), cert. granted (Jan. 13, 2017).  The Debtor responded that the majority of courts have disagreed with the Board and the Seventh Circuit.  Further, the Debtor argued that the Lewis case was distinguishable because the agreement in Lewis did not have an opt-out provision.

The Court held that the NLRA was unambiguous:  an employee cannot waive the right to file a class action.  Therefore, the class action waiver was unenforceable.  Because the statute was unambiguous, the Court did not need to decide whether to defer to the Board.  If Section 7 of the NLRA had been ambiguous, however, the Court stated that it would have deferred to the Board, as the Seventh Circuit did, because this was the Board’s area of expertise.

The Court then held that the opt-out provision was not sufficient to revive the class waiver.  The Board had previously found that an employer may not use an opt-out provision to get an employee to waive the right to file class actions because such a provision burdens the employee, forces the employee to make “an observable choice,” and makes the employee “prospectively waive” the right.  In its Opinion, the Court determined that the NLRA was ambiguous on this issue.  The Court then chose to defer to the Board because the Board “relied on a substantial body of authority,” “thoroughly explained its position,” applied federal labor policy, and drew upon “its body of experience.”