Fifth Circuit Rejects NLRB's Ban on Class Action Waivers

The U.S. Court of Appeals for the Fifth Circuit has invalidated the controversial decision by the National Labor Relations Board (NLRB or Board) that an arbitration agreement requiring employees to waive their right to maintain joint, class, or collective employment-related actions violates Section 8(a)(1) of the National Labor Relations Act (NLRA or Act).  D.R. Horton, Inc. v. NLRB, 2013 WL 6231617 (5th Cir. Dec. 3, 2013).

Facts and Procedural History

D.R. Horton (Horton) is a home builder with operations in over twenty states. In 2006, Horton began requiring all new and existing employees to sign, as a condition of employment, a Mutual Arbitration Agreement. Three of its provisions were at issue in the case. First, the agreement provides that Horton and its employees “voluntarily waive all rights to trial in court before a judge or jury on all claims between them.” Second, having waived their rights to a judicial proceeding, Horton and its employees agreed that “all disputes and claims” would “be determined exclusively by final and binding arbitration,” including claims for “wages, benefits, or other compensation.” Third, Horton and its employees agreed that “the arbitrator [would] not have the authority to consolidate the claims of other employees” and would “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.”

A three-member panel of the NLRB ruled that the agreement violated Section 8(a)(1) because it could be interpreted to waive employee rights to file unfair labor practice charges with the Board and required employees to waive their right to maintain joint, class, or collective employment-related actions in any forum. The panel ordered Horton to rescind or revise the agreement to clarify that employees were not prohibited from filing charges with the Board, nor were they prohibited from resolving employment-related claims collectively or as a class. Horton filed a petition for review of the panel's decision, and the Board cross-applied for enforcement of the panel's order.

The Fifth Circuit’s Analysis

As a threshold matter, the Fifth Circuit declined to invalidate the Board’s decision for constitutional reasons based on the recess appointment of Member Craig Becker, leaving that issue for the Supreme Court in the Noel Canning case.

The Court then turned to the Section 7 issue. The Court acknowledged that Board and judicial decisions gave some support for the proposition that collective and class claims, whether in lawsuits or in arbitration, are protected by Section 7 of the NLRA, which gives employees the right to engage in protected concerted activities. But according to the Court, the Federal Arbitration Act (FAA) has equal importance to the issue. Arbitration, which is favored by federal policy, “has been deemed not to deny a party any statutory right. Courts repeatedly have rejected litigants' attempts to assert a statutory right that cannot be effectively vindicated through arbitration.”  The Fifth Circuit went on to reason that class action procedures are not substantive rights – rather they are a “procedural device.”  The court concluded as follows:

The NLRA should not be understood to contain a congressional command overriding application of the FAA. The burden is with the party opposing arbitration, and here the Board has not shown that the NLRA's language, legislative history, or purpose support finding the necessary congressional command. Because the Board's interpretation does not fall within the FAA's “saving clause,” and because the NLRA does not contain a congressional command exempting the statute from application of the FAA, the Mutual Arbitration Agreement must be enforced according to its terms.

Nevertheless, the Court agreed with the Board that the agreement could reasonably be interpreted by employees as waiving their right to file unfair labor practice charges with the NLRB, so it enforced that portion of the Board's decision below.

Conclusion

At least in the Fifth Circuit, this case is a victory for employers who require employees to enter into arbitration agreements with class action waivers. The Ninth, Second, and Eighth Circuits have either suggested or expressly stated that they would not defer to the NLRB’s rationale and have enforced such agreements. It remains to be seen whether the new NLRB will revisit this issue. The Arent Fox Labor & Employment Group will continue to monitor this issue. If you have any questions, please contact the authors or any other member of the Group.