NLRB Finds Arbitration Provision Banning Class and Collective Actions to be Unlawful

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On January 3, 2012, the National Labor Relations Board (NLRB) held in D.R. Horton that a mandatory arbitration agreement between an employer and its employees violated the National Labor Relations Act (NLRA), because it required employees to waive their rights to participate in class or collective actions. Specifically, the agreement stated that an arbitrator “may hear only Employee’s individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding.”

An employee filed an unfair labor practice with the NLRB, alleging that the agreement prevented him and other employees from pursuing wage claims under the Fair Labor Standard Act as a class or collective action in court. The NLRB found that the agreement violated Section 8(a)(1) of the NLRA because it interfered with employees’ right to engage in protected, concerted activity. The NLRB reasoned that class and collective actions are a form of protected, concerted activity. As a remedy, the NLRB required the employer to revise or rescind its mandatory arbitration agreement to comply with the NLRA and also to provide notice to employees of the revised or rescinded agreement and of employees’ rights under the NLRA.

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