The Fifth Circuit Court of Appeals recently rejected the National Labor Relations Board’s holding regarding class action waivers in D.R. Horton v. NLRB – however, the court agreed with the NLRB’s decision in D.R. Horton in one respect.
In D.R. Horton and Michael Cuda, the NLRB held that an employer violated its employee’s rights under Section 7 of the National Labor Relations Act (NLRA) by requiring its employees to sign an arbitration agreement that prohibited employees from pursuing claims in a collective or class action. Among other things, Section 7 of the NLRA protects employees’ rights “to engage in other concerted activities for the purpose of collective bargaining mutual aid or protection.” 29 U.S.C. § 157. The NLRB interpreted this language to mean that an employee must be permitted to pursue claims collectively in either a judicial or arbitral forum and that an employer may not simultaneously foreclose collective or class actions in both judicial and arbitral forums.
On appeal, the Fifth Circuit rejected the NLRB’s position. The court held that the NLRB’s rule regarding class action waivers conflicted with the Federal Arbitration Act (FAA). Relying heavily on the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, the Fifth Circuit explained that requiring a class mechanism in arbitration agreements is “an actual impediment to arbitration” and undermines some of the key purposes of the FAA by making arbitration slower, more formal, and more expensive. In addition, the Fifth Circuit analyzed the NLRA’s statutory text and legislative history and determined that it did not contain any congressional commands for the NLRA to override the FAA. Accordingly, the Fifth Circuit reversed the NLRB’s holding that an arbitration agreement with a class-action waiver violates the NLRA. In doing so, the Fifth Circuit joined with the Second, Eighth, and Ninth Circuits – all of which have reached the same conclusion.
At the same time, however, the Fifth Circuit agreed with another holding of the NLRB in the D.R. Horton case. Specifically, the Fifth Circuit agreed that the arbitration agreement at issue violated the NLRA because an employee could reasonably construe the agreement to prohibit him or her from filing an unfair labor practice charge with the NLRB. The agreement broadly stated that employees who signed it agreed to waive the right to “file a lawsuit or other civil proceeding,” but included no exception for NLRB unfair labor practice proceedings. Because the agreement appeared to prohibit unfair labor practice charges, the Fifth Circuit agreed that the NLRB was correct to order D.R. Horton to take corrective action to address this problem.
Takeaways: The D.R. Horton case is a good case for employers because it represents a growing consensus among federal circuit courts that employers may include class-action waivers in arbitration agreements without violating the NLRA. At the same time, the D.R. Horton case highlights the potential risks for employers in drafting arbitration agreements so broadly that they appear to prohibit an employee from filing an unfair labor practice charge with the NLRB. When drafting arbitration agreements, employers need to be careful to avoid giving the impression that an employee cannot seek relief from an administrative agency, such as the NLRB or EEOC.