In a split decision, the Fifth Circuit Court of Appeals has rejected the view of the National Labor Relations Board (the Board). According to the Court's majority opinion, an arbitration agreement that requires employees to arbitrate all employment disputes but restricts the arbitration proceedings to individual arbitrations only (i.e., not allowing class or collective arbitrations) does not violate Section 7 of the National Labor Relations Act. D. R. Horton v. National Labor Relations Board (December 3, 2013). The Board is considering an appeal.

Why is this important?

  • Employers now can have more certainty that a well-drafted (see below the reason for including that qualifier) arbitration agreement requiring arbitration only on an individual basis is enforceable.
    • The Board had struck down D.R. Horton's mandatory arbitration agreement, finding that it violated Section 7's protections for protected concerted activity. The Board had determined that the agreement mandating only individual arbitration violated Section 7's protections for collective action among employees, which the Board reasoned included seeking collective remedies for violations of the employment laws.
    • Even after several federal courts had refused to follow the Board’s reasoning, (including some U.S. Supreme Court developments) administrative law judges for the Board, under the authority of D.R. Horton, had continued to strike down such agreements.

Three other issues deserve note.

  • It was not a total win for D.R. Horton. The 5th Circuit did find that the broad language of D.R. Horton's mandatory arbitration agreement violated the law. The Court held that the broad language could cause employees to believe reasonably that they could not file an unfair labor practice charge with the Board but rather had to arbitrate those claims too. Thus, D.R. Horton likely will have to re-draft its agreements and have them re-issued.
    • Look for this to be the next wave of challenges to such agreements. If you are considering such arbitration agreements, be sure to have them thoroughly reviewed by competent labor counsel.
  • The 5th Circuit side-stepped the issue of the Board’s authority to act. Readers will recall that, in Noel Canning, the D.C. Circuit ruled that certain recess appointments of President Obama were unconstitutional. That ruling has called into question several decisions by the Board during a particular period of time. The 5th Circuit did not rule on that issue.
  • The Fifth Circuit's decision was not unanimous. Thus, if it decides to appeal, the Board may seek an appeal before the entire 5th Circuit (a request for rehearing en banc) as an interim step before appeal to the Supreme Court.