NLRA Does Not Prevent Class Action Waivers But Overbroad Agreements Will Not Be Enforced

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The Fifth Circuit Court of Appeals refused to enforce critical portions of the NLRB’s decision in D.R. Horton, Inc., including its decision that class action waivers in arbitration agreements violated the National Labor Relations Act.  The Fifth Circuit joins the Second and Ninth Circuits and numerous federal district courts in finding that federal labor law does not prevent employers from imposing class action waivers.  However, employers should consider revising their arbitration agreements based on the Fifth Circuit’s holding that the specific wording used by D.R. Horton could be misinterpreted by employees to prevent them from filing NLRB charges.

As we previously noted, the Board’s decision in D.R. Horton was one of the most controversial decisions it had reached in years.  The Board’s decision followed closely on the heels of the U.S. Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion that class action waivers in arbitration agreements were enforceable.  Yet, the Board found that employees, regardless of whether they were represented by union, had a right to bring class action lawsuits under Section 7 of the NLRA – a statute that provides employees with a right to engage in “concerted activities for [their] mutual aid or protection.”  The Board found that an employee’s Section 7 right conflicted with and ultimately trumped Concepcion.

The Fifth Circuit rejected that argument.  In so doing, it found that the Board had attempted “to effectuate the policies of the [NLRA] so single-mindedly that it [] wholly ignor[ed]” federal law favoring arbitration agreements.   Importantly, it also noted that class actions were a procedural mechanism, “not a substantive right” and, as a result, Section 7 did not provide employees with a right to bring a class action.

The Fifth Circuit did, however, throw employees a minor victory.  Because the employer’s arbitration agreement was worded so that it applied to “a lawsuit or other civil proceeding relating to [an] employee’s employment,” the Fifth Circuit found that employees could have mistakenly understood the agreement to prevent them from filing charges before the NLRB and, to that extent only, it was unenforceable.

Ultimately, this was  a significant victory for employers, but the Fifth Circuit’s opinion raises some red flags for employers.  Arbitration agreements are typically worded very broadly to apply to every conceivable type of employment dispute – statutory, common law, or otherwise.  While nearly all courts to have considered the issue have found, like the Fifth Circuit, that employees have no substantive right under the NLRA, the Fifth Circuit’s decision serves as an important reminder that the wording employers use in their agreements has the potential to undermine class action waivers.  To be sure, arbitration agreements in the employment context should still be worded broadly.  However, employers should include language in their arbitration agreements to make clear that they do not apply to proceedings before the NLRB or else they risk having their agreements invalidated on technical grounds, as in D.R. Horton.

Topics:  Arbitration, Arbitration Agreements, 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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