Employers have another arrow in their quiver to fend off efforts to invalidate arbitration agreements containing class action waivers. On December 3, 2013, the Fifth Circuit reversed the National Labor Relations Board’s (“NLRB”) decision invalidating class action waivers in employee arbitration agreements. See D.R. Horton, Inc. v. NLRB, --- F.3d ---, 2013 WL 6231617, Case No 12-60031 (5th Cir. Dec. 3, 2013). In the decision under review (In re D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012)), the NLRB held that D.R. Horton’s mandatory arbitration agreement, which prohibited employees from filing class or collective action claims in any judicial or arbitral forum, violated Sections 7 and 8(a)(1) of the National Labor Relations Act (“NLRA”) by prohibiting employees’ ability to engage in collective action. In reversing the NLRB’s decision, the Fifth Circuit held 2-1 that the NLRB failed to give appropriate weight to the Federal Arbitration Act (“FAA”) and Congressional policies favoring arbitration.
Section 7 of the NLRA states that employees have the right to “engage in [ ] concerted activities for the purpose of collective bargaining or other mutual aid or protection.” 29 USC § 157. Section 8(a)(1) of the NLRA prohibits employers “interfer[ing] with, restrain[ing], or coerc[ing] employees in the exercise of their rights” granted in Section 7. 29 USC § 158. The NLRB found that D.R. Horton’s arbitration agreement, and specifically the restrictions on class or collective actions, violated these provisions. D.R. Horton appealed, arguing that the NLRA does not grant employees a substantive right to class action procedures and that the decision impermissibly conflicted with the FAA. In large part (but not entirely) the Fifth Circuit agreed.
The Fifth Circuit noted the general proposition that courts grant deference to an agency’s interpretation of an ambiguous statute that it administers. Nevertheless, it held that such deference must yield when the NLRB’s decision conflicts with unrelated federal statutes and policies. And, while the NLRA may grant employees the right to engage in collective activities as a way to equalize bargaining power between employers and employees, the use of class action procedures is not a substantive right. Rather, it is a procedural mechanism ancillary to such rights. Accordingly, substantive rights granted under the NLRA are not the same as the right to pursue a class action in a judicial or arbitral forum.
The Fifth Circuit also rejected the NLRB’s reasoning that prohibiting class action waivers would not conflict with the FAA. The NLRB had held that, while the FAA requires courts to treat arbitration agreements on the same footing as any other private contract, “to find that an arbitration agreement must yield to the NLRA is to treat it no worse than any other private contract that conflicts with federal labor law.” The Fifth Circuit, applying the U.S. Supreme Court’s reasoning in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), found that the NLRB’s prohibition on class action waivers had the effect of disfavoring arbitration because “employers would be discouraged from using individual arbitration,” and requiring class arbitration would “interfere[ ] with fundamental attributes of arbitration and thus create[ ] a scheme inconsistent with the FAA.”
Further, the Fifth Circuit found that the NLRA did not contain any congressional command, explicit or implicit, that would override the FAA. The court examined the NLRA’s text, legislative history, and the relative effective dates of the statutes, as well as whether an inherent conflict existed between arbitration and the NLRA’s underlying purposes. In each instance, the Fifth Circuit found no evidence of a congressional intent to favor the NLRA over the FAA. The court also acknowledged that every other circuit court that had considered the issue indicated, expressly or implicitly, their disagreement with the NLRB’s reasoning.
D.R. Horton did not completely carry the day, however. The Fifth Circuit affirmed the NLRB’s holding that the language of D.R. Horton’s arbitration agreement would lead employees to reasonably believe that they were prohibited from filing charges of unfair labor practices with the NLRB itself. An agreement that created this reasonable belief would violate Section 8(a)(1) of the NLRA. Accordingly, the court enforced the NLRB’s decision requiring D.R. Horton to rescind or revise its agreement to clarify that employees are not prohibited from filing unfair labor charges with the NLRB.
What does this decision mean for employers? While the Fifth Circuit’s ruling is a significant victory for those who use arbitration agreements featuring class action waivers, it is not the end of the story. The NLRB may appeal the decision to the Supreme Court or let other Circuits continue to rule on cases raising the issue before selecting a case to appeal. Furthermore, a Supreme Court affirmance of the Fifth Circuit’s decision is not a sure thing; while the Court has invalidated state statutes and decisions that effectively disfavor arbitration, it is not clear how it would weigh the FAA against the NLRA’s grant of employee rights to collective action. Furthermore, the NLRB may continue to apply its prohibition on class action waivers in cases outside of the Fifth Circuit. Nevertheless, the ruling is yet another decision in a series enforcing class action waivers under the FAA’s directive that arbitration agreements must be enforced as written, and that trend appears likely to continue.