On Tuesday, a divided 5th Circuit panel held that an employer does not violate the National Labor Relations Act (NLRA) by requiring its employees sign an arbitration agreement prohibiting them from bringing class or collective employment claims in any forum. This is a major victory for many employers who have turned to arbitration class waivers as a means to dodge class action lawsuits.
In the case, D.R. Horton, Incorporated v. National Labor Relations Board, a nationwide class of similarly situated superintendents sought to initiate arbitration for their claims that D.R. Horton had misclassified them as exempt from statutory overtime protections, in violation of the Fair Labor Standards Act. D.R. Horton responded that the Mutual Arbitration Agreement, which it requires all new and existing employees to sign, barred pursuit of collective claims — instead, D.R. Horton invited each claimant to initiate individual arbitration proceedings. The NLRB previously held that D.R. Horton’s Mutual Arbitration Agreement violated Sections 8(a)(1) and (4) of the NLRA, because the language of the arbitration agreement caused employees to reasonably believe they could not file charges with the Board. Thus, D.R. Horton was ordered to rescind or revise the agreement to clarify that employees were not prohibited from filing charges with the Board, nor were they prohibited from resolving employment-related claims collectively or as a class. D.R. Horton filed a petition for review of the panel’s decision.
This Tuesday, the 5th Circuit reversed the NLRB’s previous decision, noting that class or collective action procedures are not a substantive right — but rather a procedural device. Further, the court found that the NLRB did not give proper credence to the Federal Arbitration Act (FAA), which requires that arbitration agreements, like the one at issue in this case, be enforced by their terms. Nevertheless, D.R. Horton was required to clarify its Mutual Arbitration Agreement with its employees, because its arbitration agreement could reasonably be interpreted as eliminating an employee’s rights to pursue claims of unfair labor practices with the Board.
Ultimately, D.R. Horton may have won the battle, but the war is far from over. The 5th Circuit’s ruling is unlikely to be the last word on this issue — notably, the NLRB may seek a review by the Supreme Court in the present case. Moreover, there are plenty of cases in the pipeline that will allow the board to revisit this issue, which will have a huge impact on the 5th Circuit’s ruling and on employers operating beyond that court’s jurisdiction. But for now (at least in the 5th Circuit), carefully crafted arbitration agreements, containing class waivers, are a viable option for combating class action lawsuits.