Finding the National Labor Relations Board failed to give appropriate weight to the Federal Arbitration Act, the federal Fifth Circuit Court of Appeals overturned a Board decision invalidating an arbitration agreement that prohibited employees from pursuing claims in a collective or class action. Nonetheless, the court upheld the portion of the Board’s decision requiring the employer to clarify that the arbitration agreement did not preclude employees from filing unfair labor practice claims with the Board.

In D.R. Horton, Inc. v. National Labor Relations Board, D.R. Horton appealed an adverse Board decision holding that its mandatory employee arbitration agreement violated the National Labor Relations Act. By way of background, as more fully described in our February 2012 FEB, the Board held that the arbitration agreement’s class and collective action waiver improperly restricted employee rights to engage in concerted activity for their mutual aid and protection and held the waiver to be unenforceable. The Board concluded that its decision did not offend the pro-arbitration policy of the Federal Arbitration Act and, in fact, accommodated the policies of both the NLRA and the FAA.

On appeal, the Fifth Circuit disagreed. While recognizing the judicial deference afforded to Board interpretations of ambiguous provisions it administers, the court observed that “the Board has not been commissioned to effectuate the policies of the [NLRA] so single-mindedly that it may wholly ignore other and equally important Congressional objectives.” Thus, courts have “never deferred to the Board’s remedial preferences where such preferences potentially trench upon federal statute and policies unrelated to the NLRA.”

The Fifth Circuit started its analysis with the FAA mandate that arbitration agreements be enforced according to their terms. It noted two potentially applicable exceptions: (1) an arbitration agreement may be invalidated upon a ground that would invalidate any contract, and (2) application of the FAA may be precluded by another state’s contrary congressional command. Citing by analogy to the California Supreme Court’s decision in AT&T Mobility LLC v. Concepcion (Fenwick’sApril 28, 2011 Litigation Alert), the court found that “requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” The court further found no express statutory or legislative congressional command to override the FAA or any other inherent conflict between the NLRA and the FAA. Because neither exception provided a basis to invalidate the class action waiver, the Fifth Circuit refused to enforce the Board’s order requiring D.R. Horton to rescind the waiver.

However, the Fifth Circuit recognized that the Board reasonably concluded the arbitration agreement could lead employees to believe they were precluded from filing an unfair labor practices charge with the Board. It, thus, enforced the requirement that D.R. Horton revise its agreement on that point.

While this decision provides helpful support for employers that use class waivers in employee arbitration agreements, employers should understand that this area of the law continues to be in flux. Decisions to install such waivers should be informed by legal advice and a weighing of the benefits and risks of such a provision. Further, following this decision, employers should revisit their arbitration agreement forms to ensure they do not inadvertently overreach and preclude (or appear to preclude) employees from filing unfair labor practices claims with the Board. Specifically, arbitration agreements should be clear that employees are not waiving their right to file unfair labor charges with the Board.