Class Action Waivers in Employment Arbitration Agreements Win Major Victory

December 4, 2013

The U.S. Court of Appeals for the Fifth Circuit issued a significant decision yesterday, reversing the National Labor Relations Board (NLRB) and clearing the way for employers to include class action waivers within employer/employee mandatory arbitration agreements. D.R. Horton, Incorporated v. NLRB, No. 12-60031 (5th Cir. Dec. 3, 2013).

Although the decision on appeal was issued by the NLRB under the National Labor Relations Act (NLRA), it has direct application to nonunion employees in workplaces in which no union is on the scene.

In a widely publicized 2012 decision, the NLRB relied upon language within the NLRA that guarantees nonunion and union employees alike the right to engage in “concerted activity for mutual aid or protection” to include rights outside the workplace, specifically the right to litigate in court through class or collective actions. If this ruling had been upheld on appeal, all employer class action waivers would have been deemed violations of the NLRA and arguably unenforceable in court.

Even under the fairly deferential standards that appellate courts use to review decisions of administrative agencies, however, the Fifth Circuit reversed the NLRB, concluding the NLRB did not give proper weight to the Federal Arbitration Act, which generally favors arbitration.

The NLRB may seek review by the U.S. Supreme Court, and in fact may adhere to its 2012 position in DR Horton until all the various federal circuits have rejected it. The decision of the U.S. Court of Appeals for the Fifth Circuit nonetheless represents a major defeat for the NLRB, and major win for employers with arbitration programs.

The Fifth Circuit did affirm the NLRB in one small and predictable respect. D.R. Horton’s arbitration agreement, in that it appeared to prevent employees from filing charges with the NLRB as to violations of the NLRA, is invalid and has to be corrected.

In conclusion, the NLRB’s collateral attack on class action waivers in the employment setting has suffered a major setback. Even post-D.R. Horton, class action waivers may still be subject to challenge based upon long-standing contract law. A carefully crafted arbitration plan that ensures due process in the arbitral forum, however, is likely to be enforced.

Please Note: This publication is intended to provide general information only and should not be considered legal advice.