The NLRA Does Not Prohibit Class-Action Waivers in Employment Arbitration Agreements: The Fifth Circuit's D.R. Horton Decision

The Fifth Circuit issued its long-awaited decision in D.R. Horton, Inc. v. NLRB, No. 12-60031 (5th Cir. Dec. 3, 2013). In its D.R. Horton decision, the NLRB had held that section 7 of the NLRA prohibited class-action waivers in mandatory arbitration agreements imposed by employers, because such waivers impeded the right of employees to engage in collective activity. The Fifth Circuit summarized the NLRB's decision as follows:

Taking this view of Section 7, the Board held that the NLRA protects the right of employees to “join together to pursue workplace grievances, including through litigation” and arbitration. The Board concluded that an “individual who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7 . . . central to the [NLRA’s] purposes.” In the Board’s opinion, by requiring employees to refrain from collective or class claims, the Mutual Arbitration Agreement infringed on the substantive rights protected by Section 7.

Disagreeing with the NLRB, the Fifth Circuit held that the Federal Arbitration Act trumped section 7 of the NLRA, at least as applied to ordinary employment matters:

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.

(Citation omitted).

The Fifth Circuit thus held that the class action waiver in the arbitration clause was enforceable under the Federal Arbitration Act.

On a secondary issue, the Fifth Circuit held that the arbitration clause could not restrain the filing of an unfair labor practices charge with the NLRB. The court found that the clause created the impression that it would prohibit such claims:

The arbitration agreement would violate the NLRA if it prohibited employees from filing unfair labor practice claims with the Board. Even “in the absence of express language prohibiting section 7 activity, a company nonetheless violates section 8(a)(1) if ‘employees would reasonably construe the language to prohibit section 7 activity.’” Cintas Corp. v. NLRB, 482 F.3d 463, 467 (D.C. Cir. 2007) (citation omitted).

The agreement clearly provides that employees agree to arbitrate “without limitation[:] claims for discrimination or harassment; wages, benefits, or other compensation; breach of any express or implied contract; [and] violation of public policy.” It also provides for four exceptions to arbitrations. None of these exclusions refer to unfair labor practice claims.

. . .

Most importantly, the Mutual Arbitration Agreement concludes with an employee’s acknowledgment that he or she “knowingly and voluntarily waiv[es] the right to file a lawsuit or other civil proceeding relating to Employee’s employment with [Horton] as well as the right to resolve employment-related disputes in a proceeding before a judge or jury.” (emphases added). The reasonable impression could be created that an employee is waiving not just his trial rights, but his administrative rights as well.

The Fifth Circuit thus upheld the NLRB's ruling that the employer must take corrective actions to eliminate the impression that the arbitration clause applied to unfair labor practice charges.

In a dissenting opinion, Judge Graves concluded that the arbitration clause did violate section 7 of the NLRA and that it should not be treated differently from any other contract that infringed on section rights.

David C. Holmes is a Houston Employment Lawyer with the Law Offices of David C. Holmes