Fifth Circuit Upholds Arbitration Agreement Prohibiting Employee Collective or Class Action Claims

On Tuesday, the U.S. Court of Appeals for the Fifth Circuit joined the Second, Eighth and Ninth Circuits in upholding a class action waiver in an employment arbitration agreement. This is an important victory for employers in managing risks associated with collective or class action claims.

In D.R. Horton, Inc. v. NLRB, No. 12-60031, the Fifth Circuit partially overturned a January 3, 2012, National Labor Relations Board (NLRB) decision that the challenged arbitration agreement violated Section 8(a)(1) of the National Labor Relations Act (NLRA) because: (1) the waiver of collective and class action claims infringed on employees' Section 7 rights to engage in concerted activities protected by the NLRA; and (2) the arbitration agreement could be reasonably interpreted to prohibit an employee's right to file an unfair labor practice charge with the NLRB. The Fifth Circuit reversed the NLRB's holding on the first ground but upheld it on the second.

In so doing, the Court relied on the Federal Arbitration Act (FAA), which generally requires that arbitration agreements be enforced according to their terms, subject to limited exceptions. The Fifth Circuit found that no applicable exceptions in this case.

In affirming the NLRB's ground for its holding, the Court noted that "the Arbitration Agreement could be misconstrued" to preclude unfair labor practice charges filed with the NLRB. The challenged D.R. Horton arbitration agreement used extremely broad language that required all disputes to be settled by arbitration with four exceptions. Because filing an unfair labor practice charge with the NLRB was not one of those express exceptions, the court found that a reasonable employee could read the arbitration agreement as precluding the right to file a charge with the NLRB.

The court upheld the NLRB's decision that the agreement must be rewritten to allow expressly for a charge to be filed with the NLRB.

The NLRB may request en banc review by the Fifth Circuit and file a petition to review the Fifth Circuit's ruling with the Supreme Court of the United States.

Bottom Line
The Fifth Circuit's decision makes arbitration agreements more attractive, as they may preclude not only individual but also collective or class action claims. Especially as the number of FLSA collective actions has dramatically increased, an arbitration agreement with a class and collective action waiver may substantially minimize an employer's potential liability as well as much of the substantial time and expense of defending against such claims in court proceedings.

Employers who do not regularly enter into an arbitration agreement with their employees, or who have agreements that do not prohibit class actions, should consider doing so because it may reduce the risk associated with class action claims. However, the agreement should explicitly state that employees are not waiving their right to file a charge with the NLRB.

Written by:

Published In:

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.

© Bracewell & Giuliani LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.
×
Loading...
×
×