By Patrick J. Hoban*
On December 4, 2013, the Fifth Circuit Court of Appeals, in D.R. Horton, Inc. v. NLRB, No. 12-60031, reversed the National Labor Relations Board ("NLRB") decision that mandatory class and collective action waivers in employment arbitration agreements violate the National Labor Relations Act ("NLRA"). In recent years, the activist Obama-appointed NLRB has invaded non-union employer activities including social media policies, at-will statements in employee handbooks, and workplace investigations. The NLRB has repeatedly held that long-standing and standardized employer practices violate employees' NLRA rights. One such practice is the inclusion of waivers of class and collective actions in mandatory employment arbitration agreements.
In a 2012 decision (which Z&R discussed here), the NLRB started a firestorm when it held that homebuilder D.R. Horton's mandatory arbitration agreement, which included a class and collective action waiver, violated employee rights. Specifically, the NLRB held that employees had a substantive right under Section 7 of the NLRA to bring a class or collective actions as a form of protected concerted activity. Although the NLRB continued its attack on class action waivers in subsequent decisions (which Z&R discussed here), the Second, Eighth, and Ninth Circuit Courts of Appeals each rejected the NLRB's rationale and enforced mandatory arbitration agreements containing class action waivers. See Richards v. Ernst & Young, LLP, No. 11-17530 (9th Cir. Aug. 21, 2013); Sutherland v. Ernst & Young, LLP, 726 F.3d 290 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013).
In its decision, the Fifth Circuit held that the NLRA does not prohibit mandatory arbitration agreements with class action waivers. Contrary to the NLRB, the Court held that the right to class action procedures is not a substantive legal right, but rather a procedural device. Therefore, the Court rejected the NLRB's position that Section 7 of the NLRA includes the right to bring class or collective actions as a protected concerted activity.
The Court further explained that the Federal Arbitration Act ("FAA") establishes a national policy of favoring arbitration to resolve disputes. Under the FAA, arbitration agreements must be enforced as written in the same manner as any other contract. The Court held that because there is no substantive right to bring class or collective actions protected by the NLRA, no grounds existed under the FAA to invalidate D.R. Horton's arbitration agreement. The Court further explained that the NLRB's decision actually disfavored arbitration by sacrificing lower costs and informality in favor of time consuming and drawn-out class action arbitration while leaving employers with very limited rights of appeal. Altogether, the Court concluded, the NLRB's decision would make employers less likely to consider using arbitration to resolve employment disputes.
The Fifth Circuit further held that there is nothing in the text or legislative history of the NLRA revealing a congressional intent that its provisions override the FAA and its clear purpose favoring arbitration.
Notably for employers, the Fifth Circuit affirmed the NLRB's conclusion that D.R. Horton's arbitration agreement violated the NLRA because employees could reasonably interpret its language to prohibit them from filing unfair labor practice charges with the NLRB. Specifically, the language failed to expressly state that employees retained the right to file unfair labor practice charges and suggested that such claims were subject to arbitration. Based on this, the Court upheld the NLRB's order requiring D.R. Horton to rescind and revise its mandatory arbitration policy.
The Fifth Circuit's decision in D.R. Horton provides some light for employers who have or are considering mandatory arbitration agreements prohibiting class arbitration. However, as the NLRB is very likely to appeal the decision to the U.S. Supreme Court, final resolution of this issue is pending. In the meantime, employers that require employees to sign arbitration agreements must ensure that the agreements clearly set forth that employees retain the right to file unfair labor practices and other administrative charges to avoid running afoul of the NLRA.
*Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, appears before the National Labor Relations Board and practices in all areas of labor relations. For more information about arbitration agreements, this decision, or the NLRA, please contact Pat (pjh@zrlaw.com) at 216.696.4441.
