Fifth Circuit Rejects NLRB Ruling Invaliding Class Action Waivers in Arbitration Agreements

On December 3, 2013, the U.S. Court of Appeals for the Fifth Circuit rejected the National Labor Relations Board’s (NLRB) ruling that an employer violates the National Labor Relations Act (NLRA) by requiring employees to waive their rights to pursue class or collective actions as part of an employment arbitration agreement. 

In 2008, former D.R. Horton employee Michael Cuda sought to initiate a nationwide class arbitration, alleging that D.R. Horton was misclassifying its superintendents as exempt from the Fair Labor Standards Act’s overtime pay requirements. Beginning in 2006, D.R. Horton required all employees to sign a Mutual Arbitration Agreement (MAA) as a condition of employment. The MAA included a provision that all employment-related disputes must be resolved through individual arbitration, waiving employee rights to pursue class or collective actions through either a judicial or arbitral forum. Thus, D.R. Horton rejected the arbitration demand, arguing that the MAA barred arbitration of collective claims. Mr. Cuda then filed an unfair labor practice charge, alleging that the class action waiver violated the NLRA.

The NLRB ruled that the MAA unlawfully infringed upon employees’ substantive rights under Section 7 of the NLRA to engage in concerted activity for mutual aid and protection with respect to terms and conditions of employment. D.R. Horton appealed the decision.

In a much-anticipated decision, the Fifth Circuit disagreed with the NLRB’s conclusion. Citing the U.S. Supreme Court’s decision in CompuCredit v. Greenwood, the Fifth Circuit found that the NLRA does not create a congressional command that overrides the Federal Arbitration Act (FAA). It found nothing in the NLRA’s text or legislative history evidencing a congressional intent to disavow arbitration. It also found no inherent conflict between the FAA and the NLRA’s purpose.

The Fifth Circuit therefore concluded that under AT&T Mobility v. Concepcion, the MAA’s class action waiver must be enforced according to its terms. The court was impressed that every other circuit to consider the application of the NLRB's opinion to a class action waiver in an arbitration agreement has rejected that argument and found such waivers enforceable. In dissent, Judge James E. Graves, Jr., wrote that he would affirm the NLRB's opinion, thus insuring that the debate over the NLRB's D.R. Horton decision will continue.

The court did, however, agree with the NLRB’s finding that D.R. Horton violated Sections 8(a)(1) and (4) of the NLRA because the MAA could be read by a reasonable employee as prohibiting the filing of a charge with the NLRB. A list of exclusions in the MAA did not expressly mention unfair labor practice claims under the NLRA. 

Interestingly, the court declined to weigh in on the constitutionality of President Obama's recess appointments to the NLRB, leaving that issue to be resolved by the U.S. Supreme Court in the pending Noel Canning case.

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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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