Fifth Circuit Overrules NLRB, Finds D.R. Horton May Preclude Class Arbitration

Labor unionAfter three federal circuits had already refused to defer to the NLRB’s decision in D.R. Horton, it is not surprising that the Fifth Circuit yesterday overruled the NLRB’s critical holding: that precluding class arbitrations is a violation of federal labor law.  D.R. Horton, Inc. v. Nat’l Labor Relations Bd., __ F.3d __, 2013 WL 6231617 (5th Cir. Dec. 4, 2013).

D.R. Horton builds homes in many states.  Starting in 2006, its employees had to sign a Mutual Arbitration Agreement.  The MAA called for binding arbitration of disputes and provided that “the arbitrator [would] not have the authority to consolidate the claims of other employees” or “the authority to fashion a proceeding as a class or collective action.”  In 2008, a class of superintendents tried to bring a class arbitration related to allegations that the builder violated the Fair Labor Standards Act.  Horton insisted that the employees could only arbitrate on an individual basis.  In response, the lead plaintiff filed an unfair labor practice charge.

In 2012, the NLRB found that the MAA violated labor law by requiring employees to waive their right to joint, class or collective employment actions.  On a petition for review, the Fifth Circuit reversed that decision.  Because the NLRB is entitled to deference in its interpretation of the labor laws, the Fifth Circuit largely accepted the Board’s analysis that requiring employees to refrain from collective and class actions violates Sections 7 and 8(a)(1) of the NLRA, because it impedes employees ability to enage in concerted activity, i.e. class claims.  (Not without some digs, though.  Like this one: “no court decision prior to [this one] had held that the Section 7 right…prohibited class action waivers.”)  However, the court found the NLRB had not given sufficient weight to the FAA in its analysis and “[c]aselaw under the FAA points us in a different direction than the course taken by the Board.”

The court analyzed the two potential bases for finding an arbitration agreement is invalid under the FAA.  First, it looked at whether the savings clause in Section 2 of the FAA (arbitration agreements are enforceable “save upon such grounds as exist at law” for revocation) provides authority to invalidate the MAA based on the NLRA.  (Holy acronyms!)  The court concluded that the “Board’s rule does not fit within the FAA’s savings clause” under the same reasoning set forth in Concepcion.  In short, “[r]equiring a class mechanism is an actual impediment to arbitration and violates the FAA.”

Second, the court looked at whether Congress intended the NRLA to override the FAA.  Nothing explicit in the text of the NLRA shows that intent and the court found nothing in the legislative history showing that intent.  Therefore, it looked to whether there was an “inherent conflict between the FAA and the NLRA’s purpose.”  The court found no inherent conflict, largely because courts have allowed arbitration of NLRA claims generally, and courts have specifically found that arbitration agreements cannot be voided based on inequality in bargaining power.  In its final paragraph on this issue, the court said it is “loath to create a circuit split.  Every one of our sister circuits to consider the issue has either suggested or expressly stated that they would not defer to the NLRB’s rationale, and held arbitration agreements containing class waviers enforceable.”

On a different issue, however, the court upheld the NLRB’s decision.  It found that the MAA improperly gave the impression that an employee was waiving his or her administrative rights.  (The agreement included the employee’s waiver of “the right to file a lawsuit or other civil proceeding relating to Employee’s employment with [Horton].”)  Therefore, the court held the Board properly forced the builder to change that language in its MAA.

Topics:  Arbitration, Class Action, Class Action Arbitration Waivers, D.R. Horton, D.R. Horton v NLRB, NLRA, NLRB

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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