Employers often include class action waivers in arbitration clauses contained within employment applications or handbooks. In recent years, the National Labor Relations Board (“NLRB”) has cast doubt on the legal viability of this practice. In fact, in 2012 the NLRB issued a decision, D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012), that found class action waivers in arbitration clauses invalid when required as a condition of employment. The NLRB reasoned that class action waivers are an unlawful restriction on employees’ rights to “engage in...concerted activities for the purpose of collective bargaining or other mutual aid or protection,” which is guaranteed by Section 7 of the National Labor Relations Act (“NLRA”). As a result, both union and non-union employers maintaining class action waiver provisions faced the potential of NLRB charges.
The Horton case was appealed to the Fifth Circuit. On December 3, 2013, in a closely watched and highly- anticipated decision captioned D.R. Horton, Inc. v. National Labor Relations Board, 5th Cir. No. 12-60031 (Dec. 3, 2013), the Fifth Circuit Court of Appeals delivered an important victory for employers when it reversed
the NLRB’s prohibition on class action waivers. The Fifth Circuit disagreed with the NLRB on the issue of enforceability of class action waivers in the context of employment arbitration clauses and held that these clauses are enforceable and do not constitute unfair labor practices.
The Fifth Circuit ruled that the NLRB did not give proper weight to the Federal Arbitration Act (“FAA”). It reasoned that use of class action procedures is not a substantive right, and that the FAA requires arbitration agreements to be enforced according to their terms. Neither the text of the NLRA nor its legislative history contains a congressional command against application of the FAA. In so holding, the Fifth Circuit followed a recent line of precedent favoring enforcement of arbitration clauses in various contexts. See, e.g., AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).
Employers should take note, however, that the Fifth Circuit did uphold the NLRB on the limited issue of whether the arbitration clause at issue violated the NLRA because it could be construed by employees as restricting their ability to seek redress through the NLRB itself. An arbitration agreement violates section 8(a)(1) of the NLRA if it prohibits employees from filing unfair labor practice claims with the NLRB. The Court noted that the clause should be clarified to make clear that the arbitration requirement did not limit the rights of an employee to pursue claims with the Board.
The Horton case is sure to be appealed to the Supreme Court of the United States. For now, the decision provides important legal support for both union and non-union employers’ ability to maintain and enforce bilateral arbitration clauses in employment agreements.
If you would like a full copy of the Horton opinion or if you have any other questions regarding the NLRB, arbitration clauses, or any other employment matters, please contact one of our Employment Practices Liability Group Members.
