On December 3, 2013, the Fifth Circuit issued a ruling in the closely watched collective and class action waiver arbitration case, D.R. Horton v. NLRB. The National Labor Relations Board (“NLRB”) previously found that D.R. Horton’s arbitration agreement with its employees violated the National Labor Relations Act (“NLRA”) because the agreement prohibited employees from filing joint, class, or collective claims. On appeal, the Fifth Circuit disagreed, finding that the NLRB did not give proper weight to the Federal Arbitration Act (“FAA”), which was enacted to prevent courts from treating arbitration agreements less favorably than other contracts.

Significantly, the Fifth Circuit began its analysis by holding that the availability of class or collective action is not a substantive right. The court then noted that under the FAA, arbitration agreements must be enforced according to their terms. However, there are two exceptions to this general rule: the FAA has a “savings clause” that covers situations where there are grounds for the revocation of any contract, and an arbitration agreement may be invalidated where application of the FAA is precluded by another federal statute. The Fifth Circuit found that under the reasoning of the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the NLRB’s rule mandating access to collective action disfavored arbitration and, therefore, violated the FAA. Just as with the statute at issue in Concepcion, the Fifth Circuit found that the FAA’s savings clause did not apply to the NLRB’s rule and was not a basis for invalidating the class action waiver.

The Fifth Circuit then considered whether the NLRA contained a congressional command that would preclude application of the FAA. As to that issue, the NLRB did not contend that the statute contained explicit language to override the FAA, but rather argued that the NLRA’s “goal of equalizing bargaining power” could evidence Congressional intent. The Fifth Circuit, however, found the NLRB’s argument to be lacking, as even explicit references to “causes of action, filings in court, or allowing suits” in statutes have not been determined to show congressional intent to override the FAA. The court also found no evidence in the NLRA’s legislative history to suggest it was intended to disavow arbitration, and found that there was no “inherent conflict” between the two statutes that would evince congressional command.

The court did uphold the NLRB’s finding that employees could reasonably read the arbitration agreement as precluding them from filing unfair labor practice charges with the NLRB, which violates the Act. Consequently, the court found that the NLRB’s ordered corrective action was valid.

The Fifth Circuit also addressed jurisdictional issues involving the NLRB that have been hotly contested and publicized in several recent circuit court opinions. The court held that it did not need to consider the constitutionality of Member Becker’s recess appointment, because defects in an NLRB order would not deprive

the court of appellate jurisdiction. Additionally, because the federal appellate courts to have addressed the recess appointment issue are currently split, the court left the issue for the Supreme Court. The Fifth Circuit also rejected D.R. Horton’s arguments that Member Becker’s recess appointment expired before the NLRB issued its decision and that the NLRB lacked authority to issue the decision because it had not been delegated authority to act as a three-member panel.

The issue of class action waivers will continue to be litigated, and the Fifth Circuit’s ruling here may be appealed to the Supreme Court. We will continue to monitor future developments in future briefings.