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NLRB Limits Arbitration Agreement Class-Action Waivers

Labor & Employment Law Update

Authors: Tracey E. Diamond and Kali T. Wellington-James

5/21/2012

A version of this article was originally published in the May 2012 issue of The HR Specialist. It is reprinted here with permission.

As class-action lawsuits continue to pick up steam, employers have sought ways to limit this costly and time-consuming litigation. One method of choice: Requiring employees to sign binding arbitration provisions waiving the right to bring a class-action lawsuit.

In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the U.S. Supreme Court last year gave the green light to arbitration provisions waiving the right to bring consumer class actions.

Recently, however, the National Labor Relations Board (NLRB) held that class-action waivers violate employees’ rights to engage in concerted activity.

In D.R. Horton, Inc. (Case No. 12-CA-25764) the employer required all employees to sign a mutual arbitration agreement (MAA) as a condition of employment.

It required that (1) all employment disputes be submitted to final and binding arbitration; (2) the arbitrator did not have authority to hear or award relief as to a class action; and (3) all employees waived the right to file a lawsuit related to employment.

Violation of the NLRA

The NLRB held that the MAA violated two sections of the National Labor Relations Act (NLRA).

Section 7 of the NLRA provides employees with the right “to engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection.” In holding that the MAA violated Section 7, the NLRB reasoned that it “has long held, with uniform judicial approval, that the NLRA protects employees’ ability to join together to pursue workplace grievances, including through litigation,” and when “an individual files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, [the employee] seeks to initiate or induce action and is engaged in conduct protected by Section 7.”

The NLRB therefore held that the MAA “clearly and expressly bars employees from exercising substantive rights that have long been protected by Section 7 of the NLRA.”

The NLRB also held that the MAA violated Section 8(a)(1) of the NLRA, which makes it an unfair labor practice “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7.” 29 U.S.C. § 158(a)(1).

The NLRB treated the MAA as a unilaterally implemented workplace rule because it was imposed on all employees as a condition of hire.

Finally, the NLRB rejected the argument that the Federal Arbitration Act (FAA) supersedes the NLRA’s prohibition against class-action waivers. The NLRB held that, although the FAA reflects a pro-arbitration policy, the Supreme Court has repeatedly held that the FAA’s protection of the right to arbitrate cannot require a party to forgo substantive NLRA rights.

Not Like Concepcion

The D.R. Horton decision seems at odds with the Supreme Court’s decision in Concepcion. There, the court held that the FAA preempts state laws that invalidate class-action arbitration waivers. Although the Concepcion decision concerned a consumer contract, employers have relied on it when including class-action waivers in arbitration provisions of employment agreements.

However, the NLRB distinguished Concepcion from D.R. Horton. First, it said Concepcion dealt with a consumer contract that could lead to disputes with thousands of potential claimants, whereas D.R. Horton concerned only agreements between employers and their own employees. Second, Concepcion did not deal with the NLRA rights.

Additionally, the NLRB noted that Concepcion involved a conflict between state and federal laws (the FAA), while D.R. Horton involved a conflict between two federal statutes.

D.R. Horton has already filed an appeal in the 5th Circuit. Depending on the outcome, the case could go to the Supreme Court.

Steps Employers Can Take

In D.R. Horton, the NLRB only said that employers may not compel employees to waive their NLRA rights to collectively pursue litigation of employment claims in all forums, arbitral and judicial. What does that mean for employers?

  • employers may use mandatory arbitration as long as it doesn’t limit the ability to file NLRB charges or bring class or collective actions.
  • the class waiver prohibition is limited to statutorily defined “employees” under the NLRA. It does not cover managerial employees.
  • employers may use an arbitration agreement containing a class action waiver, as long as it allows employees to opt out if they do not want to be bound to individual, nonclass arbitration.

Expect more courts to weigh in on class-action waivers in coming years. In the meantime, employers should follow the directives set forth by the NLRB in D.R. Horton or be prepared to litigate the dispute.

Tracey E. Diamond and Kali T. Wellington-James

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.