Class Action Waivers No Longer Valid In Arbitration Agreements?

January 19, 2012

Earlier this month the National Labor Relations Board (NLRB) found that mandatory arbitration agreements which require employees to waive the right to bring class or collective actions are in violation of the National Labor Relations Act (NLRA).1 This ruling means that any arbitration agreements which contain class action waivers and are required to be signed by employees as a condition of continued employment are no longer valid.

This is in direct contrast to what most employers felt following last April’s ruling by the U.S. Supreme Court which validated the use of class action waivers in consumer arbitration agreements.2  Following that ruling it was believed that companies could require employees to sign arbitration agreements in which the employees waived the right to bring class action actions against their employers.  In fact, following that ruling this author opined the following:

  • Employers who use arbitration agreements with their employees may now wish to insert into their arbitration agreements language that prohibits employees from joining any class action against the company. For employers who do not use arbitration agreements but are fearful of the potential for class action matters, now may be the time to implement such agreements.

However, the NLRB held “an individual who files a class or collective action regarding wages, hours, or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by [the NLRA].”  The Board continued, “When, as here, employers require employees to execute a waiver as a condition of employment, there is an implicit threat that if they refuse to do so, they will be fired or not hired.”

The NLRB attempted to distinguish its decision from that of the Supreme Court by finding that class action arbitration in the employment context “is far less cumbersome and more akin to an individual arbitration proceeding.”  This plainly ignores the fact that many employment-related class actions involve thousands of employees.  However, the Board emphasized that its holding was limited to only “employees” as defined by the NLRA.  Accordingly, employees who act as supervisors or managers would not be affected.  Finally, this decision involved the use of an arbitration agreement that was mandatory.  If the agreement had permitted employees to sign or not sign the agreement without any fear of retaliation, the result may have been different.

What this Means for You

Certainly, if your company has arbitration agreements containing class action waivers that employees are required to sign as a condition of continued employment, this ruling jeopardizes the validity of the agreement.  However, this case is not likely over and will, presumably, be appealed.  What happens at the next level is anyone’s guess.  One alternative to class action waivers in the arbitration agreement may be to carve class action matters out of arbitration agreements, but require that the employee agree that any class actions be tried only before a judge, waiving a jury.  At the end of the day, it will be important for all employers to weigh the potential risk of removing such waivers from agreements versus maintaining such clauses in the company’s arbitration agreements.

 


1 D.R. Horton, Inc.

2 AT&T Mobility LLC v. Concepcion.