D.R. Horton, Inc. v. National Labor Relations Board & Leslie's Poolmart Inc. and Keith Cunningham

Decision: The US Court of Appeals for the Fifth Circuit rejected the National Labor Relations Board’s (“NLRB” or “Board”) position that homebuilder D.R. Horton Inc. interfered with its employees' labor law rights by requiring its employees to enter a mandatory arbitration agreement that waived their ability to participate in class or collective actions. According to the Fifth Circuit, that position is inconsistent with the Federal Arbitration Act (“FAA”).

First, the court held that “[r]equiring a class mechanism is an actual impediment to arbitration and violates the FAA.” Next, the court rejected the NLRB’s argument that the National Labor Relations Act’s (“NLRA”) protection of employees’ rights to engage in “concerted activity” impliedly overrides the FAA, finding that the NLRA neither contains explicit language evidencing Congress’ intent to do so nor provides employees with a substantive right to class actions that would trump application of the FAA. Weeks later, however, an administrative law judge (“ALJ”) at the NLRB applied the Board’s D.R. Horton ruling to find that even arbitration agreements that do not explicitly prohibit class or collective actions violate the NLRA if they have the practical effect of doing so. The ALJ determined she was bound by the NLRB’s precedent in D.R. Horton and that the employer, by filing a motion to compel arbitration of the plaintiff’s individual claims and to dismiss his class allegations, demonstrated that it intended for the arbitration agreement to bar class actions and therefore violated the NLRA.

Impact: The Fifth Circuit joined the Second, Eighth and Ninth Circuit Courts of Appeal in eliminating what would have been a significant obstacle to resolving employer-employee disputes through arbitration, which a growing body of evidence confirms is beneficial to both employers and employees because of its reduced cost and shorter time to resolution as compared to pursuing resolution through the courts. It is important to note, however, that the validity under the NLRA of class waivers in mandatory arbitration agreements between employers and employees remains an open question in other appellate circuits. Additionally, in the NLRB’s view, these class waivers are still violative of the NLRA. The NLRB has not yet indicated whether it will seek Supreme Court review of the Fifth Circuit’s ruling in D.R. Horton, nor has it weighed in on the ALJ’s application of its D.R. Horton ruling to arbitration agreements that do not explicitly bar class or collective actions.