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Fifth Circuit Reverses NLRB Position on Use of Class and Collective Action Waivers in Mandatory Arbitration Agreements

    Client Alerts
  • December 06, 2013

On Tuesday, the Fifth Circuit Court of Appeals overturned a decision of the National Labor Relations Board that declared class and collective action waivers in mandatory employment arbitration agreements to violate federal labor law. D.R. Horton, Inc. v. NLRB involved FLSA overtime claims by employees who sought arbitration of the matter as a collective action. The employer’s arbitration agreement specifically excluded such class or collective action claims, requiring aggrieved employees to pursue individual actions.
The employees contended that this exclusion violated Sections 7 and 8(a)(1) of the National Labor Relations Act, because it precluded them from engaging in concerted activities for mutual aid and protection. The NLRB agreed, declaring that Section 7’s concerted activity protections extend to pursuit of workplace grievances through litigation and arbitration.
The Fifth Circuit disagreed in a 2-1 decision, finding that the NLRB failed to give appropriate consideration to provisions of the Federal Arbitration Act. The court said that use of class or collective action procedures is not a substantive statutory right. Moreover, the NLRB’s bar disfavors arbitration in violation of the FAA. Employers are less likely to use arbitration if faced with the specter of class or collective actions. Such actions require procedural steps inconsistent with the intent of arbitration as a quicker, less costly alternative to litigation. Finally, the NLRA predated modern class action practice and arbitration of employment claims. The Fifth Circuit found the later FAA to be a more current expression of legislative intent in favor of arbitration.
Finally, the court concluded that D.R. Horton’s mandatory arbitration provision could mislead employees into believing that they were waiving their right to file unfair labor practice charges with the NLRB. The court upheld the NLRB’s order that the agreement’s language be changed to specifically notify employees of their right to file claims with the NLRB.
Overall, this decision is a significant victory for employers. Invalidating the use of class and collective action waivers in arbitration agreements would remove one of the primary benefits of use of alternative dispute resolution. This decision may be reviewed by the full Fifth Circuit or the U.S. Supreme Court. In the meantime, employers should consider amending their arbitration agreements to include the NLRB disclaimers upheld by the court.