The Ruling

The Fifth Circuit rejected the National Labor Relations Board’s (“NLRB”) highly controversial decision that ruled D.R. Horton’s mandatory arbitration agreement violated the National Labor Relations Act (“NLRA”) because employees could reasonably interpret its language as restricting their right to file unfair labor practice charges. More importantly, the NLRB also determined that the arbitration agreement violated the NLRA because it required employees to waive their right to pursue joint, class, or collective actions in any forum.

The Fifth Circuit held that the NLRB failed to give “proper weight” to the Federal Arbitration Act, which requires that arbitration agreements be enforced “according to their terms” unless Congress has specified otherwise. The Court did agree with the NLRB that D.R. Horton must clarify that the arbitration agreement does not preclude employees from pursuing claims of unfair labor practices with the NLRA.

The decision is significant because many employers are now able to include a ban on class actions in their arbitration agreements. In addition, it provides guidance to employers on how to properly draft their mandatory arbitration agreements so as to avoid conveying the impression that employees may not file administrative charges with the NLRA.

Karen Harned, executive director of the National Federation of Independent Business - Small Business Legal Center, claimed that the ruling is a “major setback for the NLRB, which continues to rely on controversial policies to invalidate class action waivers. However, it is a victory for small business owners, who lack the in-house resources to defend employment disputes in court."

Employer Takeaway

In light of the ruling, now is a good time for all employers without arbitration agreements in place to analyze the pros and cons of adopting such policies. If an employer currently uses an arbitration agreement, it should be reviewed and possibly updated to ensure compliance with the evolving nuances in this area of law.

While employers celebrate this ruling, it is important to stay abreast of developments in this area as the battle over the enforcement of arbitration agreements is far from over. There is still a flurry of litigation throughout the country concerning the enforcement of arbitration agreements that is leading to varied and often contradictory decisions from state to state.