Class Action Waivers in Arbitration Agreements Given New Life

December 10, 2013

As I reported in January 2012, the National Labor Relations Board (NLRB) had held that class action waivers in arbitration agreements between employers and employees were a violation of the National Labor Relations Act (NLRA).¹  The rationale behind the NLRB’s decision was “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].”  Thankfully for employers, that decision was recently overturned by the United States Fifth Circuit Court of Appeals inD.R. Horton Inc. v. National Labor Relations Board.

D.R. Horton is a homebuilder that required all employees to sign, as a condition of employment, an agreement requiring employees to arbitrate any disputes they may have against the employer, and waive the authority of the employees to proceed with class action claims against the company.  One of the company’s employee’s challenged the agreement before the NLRB on the grounds that the class action waiver agreement violated Section 7 of the NLRA which allows employees to band together in confronting an employer regarding the terms and conditions of their employment.  The Fifth Circuit noted, however, that no court decision had ever held that the right to engage in “concerted activities for the purpose of…other mutual aid or protection” prohibited class action waivers in arbitration agreements.

In overturning the NLRB, the Court found that pursuant to the Federal Arbitration Act (FAA), arbitrations are a favored means of resolving conflicts, and the FAA requires that arbitration agreements must be enforced according to their terms.  The court explored the NLRA’s language and examined Congressional intent, and found nothing to indicate that Congress intended the NLRA to override the FAA.

However, the Fifth Circuit did find that there were some problems with D.R. Horton’s agreement as it was written.  The Court found that the company had violated the NLRA by requiring employees to sign the agreement since there was nothing in the Agreement which specifically indicated that employees could still file NLRB charges. The court agreed with the NLRB that employees would reasonably interpret the mandatory arbitration agreement as prohibiting them from filing claims with the NLRB.

What this Means for You

This ruling is a victory for employers, but it also means that if you currently have an arbitration agreement in place, that it will savings clause to advise employees of their right to file NLRB charges.  Accordingly, it is important that these agreements be reviewed and revised by competent counsel.