Last week, the National Labor Relations Board (“NLRB” or “Board”) ruled that arbitration agreements prohibiting employees from filing class action claims violate the National Labor Relations Act (“NLRA”). D.R. Horton Inc., 12-CA-25764. The Board found that filing a class or collective action claim is a clearly protected activity under Section 7 of the NLRA, which states that employees have the right to take collective action for their “mutual aid or protection.” Further, arbitration agreements that waive an employee’s right to bring a class action claim in both arbitration and judicial proceedings violate the employee’s Section 7 rights. The Board limited its ruling to arbitration agreements that could be reasonably read to bar protected activity, and declared that its decision was not in conflict with the recent landmark Supreme Court case finding that the Federal Arbitration Act (“FAA”) preempted a California state law making class action waivers in consumer arbitration agreements unconscionable. AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011) (“Concepcion”)
D.R. Horton, a home building company, required that new and current employees sign an arbitration agreement as a condition of employment. The agreement provided that all disputes arising from the employment would be determined though arbitration, that the arbitrator would not be able to consolidate individual claims as a class or collective action, that the arbitrator would not be able to award relief to a class of employees in an individual proceeding, and that the employee waived the right to file a lawsuit relating to the employment. Michael Cuda and a nationwide class of other superintendents believed that D.R. Horton misclassified them as exempt from the Fair Labor Standards Act (“FLSA”), which provides minimum wage and hour protections for employees. Cuda gave notice of intent to initiate classwide arbitration. D.R. Horton responded that the employees had not given an effective notice of intent to arbitrate, because the agreement barred arbitration of class action claims. Cuda then filed an unfair labor practice charge with the NLRB.
The Board found arbitration agreements that completely waive the employee’s right to bring class and collective action claims violate the NLRA. Because the right to pursue collective action has long been protected by the NLRA, the Board found that these arbitration agreements explicitly restrict such protected conduct. Alternatively, the Board found the agreement in question violated the NLRA because employees could reasonably construe the rule as prohibiting protected activities.
The Board then dismissed the argument, raised by D.R. Horton and several supporting amici, that voiding such arbitration agreements conflicts with the FAA. First, the Board noted that the purpose of the FAA was to put arbitration contracts, previously disfavored by judges, on the “same footing” as other private contracts in terms of enforceability. However, because other private contracts that conflict with the NLRA must yield, the Board stated that the FAA is not violated by finding that an arbitration agreement in conflict with the NLRA must yield.
Second, arbitration agreements may not require a party to waive any vested substantive rights, and the employee’s right to engage in collective action has long been acknowledged as a substantive right. Third, the FAA allows for arbitration agreements to be enforced wholly or in part if certain provisions of the agreements go against public policy. The Board found that Section 7 of the NLRA exemplified a strong public policy in favor of protecting collective action. Finally, even if the FAA and the NLRA were found to be in conflict, the Board stated that the FAA would have to yield to the NLRA because the NLRA was enacted later in time and should be understood to have repealed any inconsistent provisions in earlier statutes.
The Board also attempted to reconcile its decision with the Concepcion case, decided by the Supreme Court last April. The Board stated that the conflict in Concepcion was one between the FAA and a state law, whereas the D.R. Horton case involved a potential conflict between two federal statutes. Although the Supreme Court found that the FAA preempted California state law, the Board held that the FAA does not preempt the NLRA. Additionally, the Board noted that its decision would not require employers to submit to class arbitration without their consent. Rather, employers are prohibited from foreclosing employees from bringing class claims in both arbitration and judicial forums. As long as employees are able to bring class claims in one of the two forums, arbitration agreements do not violate the NLRA.
In its order, the Board directed that D.R. Horton cease and desist from maintaining a mandatory arbitration agreement that employees could reasonably believe barred their right to file claims with the Board and from maintaining a mandatory arbitration agreement that waives the right to maintain class or collective actions in all forums, whether arbitral or judicial.
It is likely that the ruling in this matter will be appealed to the U.S. Court of Appeals and potentially to the U.S. Supreme Court.