The Fifth Circuit Court of Appeals recently handed a victory to employers in D.R. Horton, Inc. v. National Labor Relations Board, 12-60031, 2013 W.L. 6231617 (5th Cir. Dec. 3, 2013), reversing an Order of the National Labor Relations Board (NLRB) that class action waivers in arbitration agreements violate Section 8(a)(1) of the National Labor Relations Act (NLRA). The Fifth Circuit now joins the Second, Eighth and Ninth Circuits in stating, either expressly or impliedly, that arbitration agreements containing class action waivers do not violate the NLRA.

D.R. Horton employees signed mandatory arbitration agreements pursuant to which they waived their rights to participate in class or collective actions. The NLRB concluded that such agreements interfere with employee rights to engage in concerted activity. The Fifth Circuit and other circuit courts ruled, however, that the Federal Arbitration Act (FAA)’s strong support of arbitration agreements took precedence over the NLRA.

The FAA requires that arbitration agreements must be enforced according to their terms. There are two exceptions to the FAA’s general rule favoring arbitration agreements: (1) if grounds exist at law or in equity to revoke the arbitration agreement (called the FAA “savings clause”); or (2) if there is a congressional command contrary to the FAA. The NLRB had invoked the FAA’s savings clause to conclude that class action waivers violated the NLRA.

On petition for review of the NLRB decision, the Fifth Circuit found that neither the FAA’s savings clause nor any congressional command mandated the NLRB’s interpretation prohibiting class action waivers. First, with respect to the savings clause, the Fifth Circuit cited to the United States Supreme Court opinion in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), in concluding that the NLRB’s interpretation prohibiting class action arbitration waivers interferes with the “fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” D.R. Horton, 2013 WL 6231617, at * 11 (quoting Concepcion, 131 S. Ct. at 1748).

Second, after examining the NLRA’s text, legislative history and purpose, the Fifth Circuit concluded that the NLRA does not contain a congressional command overriding application of the FAA. The court held that the NLRB’s decision was not entitled to judicial deference because it purported to affect a federal statute unrelated to the NLRA – the FAA.

Notably, the Fifth Circuit did enforce a separate NLRB Order that D.R. Horton’s arbitration agreement violated Section 8(a)(1) of the NLRA because an employee could reasonably interpret the ambiguous language of that arbitration agreement as prohibiting the filing of any unfair labor practice charge with the NLRB. As a result, D.R. Horton was required to clarify with its employees that the arbitration agreement did not affect their rights to pursue claims of unfair labor practices with the NLRB.

Pepper Points

This decision bolsters employers’ use of collective action waivers in mandatory arbitration agreements. The Third Circuit Court of Appeals has not decided this issue yet, but we expect more courts to do so in the coming years. In implementing class action waivers, employers should be careful to provide an exception for unfair labor practice charges.