D.R. Horton Inc., 357 NLRB No. 184 (January 3, 2012)

On January 3, 2012, the NLRB issued its opinion in the case of D.R. Horton, Inc.  In Horton the employer required its employees, as a condition of their employment, to refrain from bringing collective or class action claims in any forum for employment-related disputes.  The NLRB considered whether the employer, by requiring such a waiver from its employees, violated the National Labor Relations Act (“NLRA”).

The NLRB held that such a waiver barred the employees from exercising substantive rights that are protected under Section 7 of the NLRA.  In addition, the NLRB rejected Horton’s argument that finding the waiver of class or collective actions unlawful under the NLRA would conflict with the Federal Arbitration Act (FAA).  It noted that the purpose of the FAA was to prevent courts from treating arbitration agreements less favorably than other private contracts.  The NLRB noted, however, that when private contracts conflict with the NLRA, they must yield to the NLRA.  The NLRB explained that the Supreme Court’s jurisprudence under the FAA makes clear that agreements to arbitrate federal statutory claims may not require a party to forgo substantive rights provided by the federal statute.  The NLRB held that the waiver of collective or class action claims in any forum violated substantive rights vested in employees by Section 7 of the NLRA. 

In coming to this holding, the NLRB distinguished Horton from the Supreme Court’s recent holding in AT&T Mobility v. Concepcion.  First, the NLRB noted that in AT&T Mobility the contract of adhesion that waived class action rights was in the retail and services industry, and such contracts of adhesion might involve tens of thousands of potential claimants.  In contrast, the NLRB noted that class-wide employment litigation usually involves only a specific subset of employees.  The NLRB stated that a class-wide arbitration in a situation like Horton is far less cumbersome than in a situation like AT&T Mobility, and therefore it is more like an individual arbitration proceeding.  The NLRB further noted that AT&T Mobility involved a conflict between the FAA and state law, whereas Horton involved the argument that two federal statutes conflicted.  Importantly, several courts that have evaluated the NLRB’s holding have done so with skepticism.  The holding may eventually be invalidated, but employers seeking to use class action waivers should be aware of the holding.

Planning Tip:

In Horton, the NLRB observed that its holding did not mandate class arbitration in order to protect employees’ rights under the NLRA.  Rather, it held that employees may not be compelled to waive their NLRA rights to collective or class action litigation of employment claims in all forums.  According to Horton, employers may still insist that arbitration be conducted on an individual basis, as long as employees are free to pursue collective or class litigation in a judicial forum.