By Lisa M. Watanabe

On December 3, 2013, the Fifth Circuit issued its much anticipated decision overturning the National Labor Relations Board’s (“NLRB”) controversial D.R. Horton, Inc. decision invalidating class action waivers and holding that requiring employees to sign such waivers violated employees’ rights under the National Labor Relations Act (the “Act”).  As previously reported in our earlier Act Now Advisory, the NLRB’s January 3, 2012 decision held that home builder D.R. Horton, Inc. (“D.R. Horton”) unlawfully interfered with  employees’ Section 7 right to engage in concerted action for mutual aid or protection by requiring them to sign an arbitration agreement that prohibited class or collective claims in a judicial or arbitral forum.  Specifically, a two member NLRB panel held that the arbitration agreement violated the Act by (1) implicitly interfering with an employee’s right to file charges with the NLRB; and (2) by requiring employees to waive their right to joint, class or collective employment related actions.

Since then, several federal district courts as well as an Administrative Law Judge have refused to follow the NLRB’s decision in D.R. Horton.

The Fifth Circuit has followed their lead and rejected the NLRB’s ban on class action waivers but nevertheless enforced the NLRB’s order for D.R. Horton to revise the agreement to clarify it does not preclude employees from filing unfair labor practice charges with the NLRB when they believe their Section 7 rights have been violated. Here is a breakdown of the Fifth Circuit’s 30-page decision:

Fifth Circuit Punts On Issues Regarding NLRB Composition

The Fifth Circuit’s opinion began by rejecting D.R. Horton’s argument that the NLRB lacked a quorum for its January 2012 decision, essentially punting on the issue finding D.R. Horton did not timely challenge the appointment of former NLRB Member Craig Becker.

An Arbitration Agreement Which Implies An Employee Cannot File A Charge Violates Section 8(a)(1)

As noted above, the NLRB previously ruled that D.R. Horton’s mandatory arbitration agreement violated Section 8(a)(1) of the Act because its arbitration provision included language that could lead an employee to reasonably believe he/she was prohibited from filing unfair labor practices claims with the NLRB.  The Fifth Circuit concluded that the agreement could be reasonably misconstrued in this manner.  Among other things, D.R. Horton’s agreement did not identify unfair labor practice claims as an exception to arbitration and used ambiguous and inconsistent language that referred to court actions in one sentence and agency actions in another.  Therefore, the Fifth Circuit affirmed the finding that requiring employees to sign the agreement violated their Section 7 rights and Section 8(a)(1) of the Act in this limited regard and, therefore, the NLRB was entitled to order D.R. Horton to revise its agreement to make this clear.

The Act Does Not Prohibit An Employer From Having Employees Sign Class Waivers

According to the NLRB, D.R. Horton’s mandatory arbitration agreement also interfered with an employee’s substantive right under Section 7 of the Act to engage in “concerted” action for “mutual aid or protection” by finding the agreement separately violated Section 8(a)(1) by requiring employees to waive their right to pursue class or collective actions.  The Fifth Circuit, however, rejected the NLRB’s aggressive interpretation and recognized the absence of any authority to support a finding that Section 7 prohibited class action waivers.

Moreover, the Fifth Circuit disagreed with the NLRB’s conclusion that invaliding class action waivers would not conflict with the Federal Arbitration Act (“FAA”).  The NLRB took the position that the “policy behind the [the Act] trumpeted the different policy considerations in the FAA that supported enforcement of arbitration agreements.” The Fifth Circuit evaluated the NLRB’s position by analyzing the following two exceptions to the FAA’s general rule that arbitration agreements must be enforced according to their own terms: (a) the FAA’s “savings” clause which invalidates arbitration agreements only “upon such grounds as exist at law or in equity for the revocation of any contract;” and (b) a “congressional command” to override the FAA.   The Fifth Circuit concluded that the “savings” clause was inapplicable in this case based on public policy considerations discussed by the U.S. Supreme Court in AT&T Mobility v. Concepcioni.e., a ban on class action waivers would discourage individual arbitration and necessitate class action court procedures that would be inconsistent with the FAA.  The Fifth Court further held there was no text or legislative history in the Act that contained a “congressional demand” to override the FAA.

Management Missives

  • Employers should feel more comfortable in adopting and enforcing class action waivers based on the Fifth Circuit and other circuit courts’ decisions.
  • Despite this recent decision, employers should be aware that the NLRB is not likely to change its position on class action waivers any time soon based on the doctrine of non-acquiescence.  Under this doctrine, the NLRB does not have to “acquiesce” to circuit or district court decisions because it exercises national jurisdiction over the application and enforcement of the Act. Rather, the NLRB is likely to argue that D.R. Horton is good law until the U.S. Supreme Court holds otherwise.
  • An agreement that prohibits class or collective claims may be enforceable; however, the language of the agreement may violate Section 7, and constitute an unfair labor practice under Section 8(a)(1), if it’s not clear that it does not constitute a waiver of an employee’s right to file unfair labor practices claims.  For this reason, employers should review the precise wording of their agreements to ensure they do not infringe upon an employee’s Section 7 rights.
  • Employers should contact counsel to determine whether their jurisdiction permits them to revise their arbitration agreements without consideration.