In 2006, D.R. Horton, Inc. (“D.R. Horton”), a homebuilder operating in over twenty states, began requiring all new and existing employees to sign a Mutual Arbitration Agreement (the “Agreement”) as a condition of employment. The Agreement provided that D.R. Horton and its employees waived all rights to pursue claims between them in court, and would instead submit all disputes and claims to final and binding arbitration. The Agreement established that the arbitrator would “not have the authority to consolidate the claims of other employees,” and would “not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding.”
In 2008, an employee named Michael Cuda sought to pursue a class-wide arbitration against D.R. Horton for claims under the Fair Labor Standards Act. D.R. Horton argued that the Agreement barred Cuda and other employees from pursuing class claims. Cuda then filed an unfair labor practice charge with the National Labor Relations Board (the “Labor Board”), alleging that the class action waiver violated the National Labor Relations Act (“NLRA”).
On January 3, 2012, the Labor Board ordered that the Agreement violated the NLRA because employees could reasonably interpret its language as restricting their right to file unfair labor practice charges. More importantly, the Labor Board also determined that the Agreement violated the NLRA because it required employees to waive their right to pursue joint, class, or collective actions in any forum.
D.R. Horton appealed to the United States Court of Appeals for the Fifth Circuit, arguing, among other things, that the Labor Board issued a substantively incorrect decision. The Fifth Circuit agreed with D.R. Horton that the Labor Board incorrectly determined that the Agreement’s class action ban violated the NLRA.
In reaching its decision, the Fifth Circuit evaluated whether the Agreement could be invalidated under the Federal Arbitration Act (“FAA”). In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court struck down a California statute that prohibited class action waivers in arbitration agreements, ruling that the “overarching purpose of the FAA . . . is to ensure the enforcement of arbitration agreements,” and that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” The Fifth Circuit found that, like the statute in Concepcion, the Labor Board’s D.R. Horton decision interfered with fundamental attributes of the FAA. The Fifth Circuit also found that the NLRA did not explicitly or implicitly override the FAA.
Noting finally that “we are loathe to create a circuit split,” as every other circuit to consider the issue of class action waivers raised in D.R. Horton “suggested or expressly stated that they would not defer to [the Board]’s rationale,” the Fifth Circuit ruled that the Agreement must be enforced according to its terms. The Fifth Circuit’s ruling therefore expressly rejected the Labor Board’s D.R. Horton decision that class action waivers violate federal labor law.
The Fifth Circuit upheld the Labor Board’s determination that the Agreement’s language violated the NLRA by creating the impression that employees could not file unfair labor practice charges.
The Fifth Circuit’s decision is an important win for employers, but it does not necessarily spell the end of the Labor Board’s D.R. Horton decision. The Labor Board has demonstrated that it will not let the decision of one circuit impact its national policies. Accordingly, although future decisions may bring about more significant changes, for now employers should continue to expect that bans on class-wide arbitration will not be enforced by the Labor Board. Employers should also take care to avoid language in arbitration agreements that might give the impression that employees are waiving their right to file unfair labor practice charges.