February 07, 2012 Articles

    NLRB Rules Collective-Action Waivers Are Unlawful

    The NLRB ruled it is a violation of federal law to require employees to sign arbitration agreements that prevent them from joining to pursue legal claims

    by Breanna Harris

    In a decision that ostensibly conflicts with recent U.S. Supreme Court decisions, the National Labor Relations Board (NLRB) ruled that it is a violation of federal labor law to require employees to sign arbitration agreements that prevent them from joining together to pursue employment-related legal claims in any forum, whether in arbitration or in court. D.R. Horton Inc., 357 N.L.R.B. No. 184 (2012).

    In a 2–0 vote (Member Brian Hayes was recused from the case), the board held that D.R. Horton, a Florida-based home builder, committed an unfair labor practice in violation of federal labor law when it instituted a mandatory arbitration agreement that waived employees' rights to participate in class or collective actions. Specifically, the board found that the arbitration agreement—under which employees waived their right to a judicial forum and agreed to bring all claims to an arbitrator on an individual basis and which prohibited arbitrators from consolidating claims, fashioning a class/collective action, or awarding relief to a group/class of employees—interferes with the statutory right of employees under section 7 of the National Labor Relations Act (NLRA) to engage in "concerted activity" for their mutual aid or protection. As a remedy, the board required D.R. Horton to revise or rescind its mandatory arbitration agreement to comply with the NLRA and to provide sufficient notice to employees of the revision/rescission and of employees' rights under the NLRA.

    In D.R. Horton, Inc., a superintendent filed an unfair labor practice charge alleging that he and other employees were prohibited from pursuing claims that they were misclassified workers under the Fair Labor Standards Act (FLSA). The NLRB general counsel then issued a complaint alleging that the "Mutual Arbitration Agreement" (MAA) at issue violated sections 8(a)(1) and (8)(a)(4) of the NLRA. While an administrative-law judge (ALJ) found that D.R. Horton violated sections 8(a)(1) and 8(a)(4) by leading employees to believe that they were prohibited from filing NLRB charges, he dismissed the claim that the MAA interfered with employees' rights to engage in concerted activity under the NLRA. The board ultimately reversed the judge's ruling and held that the MAA did violate employees' rights to engage in concerted activity.

    In reasoning that the collective pursuit of a workplace grievance in arbitration is protected, concerted activity under section 7 of the NLRA, the board held that the MAA prohibited the exercise of substantive rights protected by the act. In fact, the board went so far as to say that the MAA "not only bars the exercise of rights at the core of those protected by Section 7, but implicates prohibitions that predate the NLRA and are central to modern Federal labor policy."

    The board rejected D.R. Horton's argument that finding an unfair labor practice would directly conflict with the Federal Arbitration Act (FAA) and concluded that its ruling—that the MAA must yield to the NLRA—treated the MAA "no worse" than any other private contract that conflicts with federal labor law. Furthermore, because it viewed the main issue to be whether the MAA's categorical prohibition of joint, class, or collective federal, state, or employment-law claims in any forum violates the NLRA, the board reasoned that the "MAA would equally violate the NLRA if it said nothing about arbitration, but merely required employees, as a condition of employment, to agree to pursue any claims in court against the Respondent solely on an individual basis."

    The board also distinguished its decision from recent U.S. Supreme Court jurisprudence, which includes a decision under the FAA that permits the enforcement of agreements to arbitrate statutory employment claims and a decision that a party cannot be required, without his or her consent, to submit to arbitration on a class-wide basis. See AT&T Mobility, LLC v. Concepcion, 131 S.Ct. 1740 (2011); Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S.Ct. 1758 (2010); 14 Penn Plaza, LLC v. Pyett, 129 S.Ct. 1456 (2009). The board found these cases inapposite because it believed that the question presented in D.R. Horton was limited only to whether the MAA violated employees' rights to engage in collective action under the NLRA and not whether the MAA infringed on their rights under other employment statutes.

    In 14 Penn Plaza, the Court upheld a union's ability in the collective-bargaining process to waive employees' individual rights to bring court actions alleging statutory employment discrimination claims. The board distinguished its decision by finding that because the MAA was "imposed on individual employees by the employer as a condition of employment," it was not on the same footing with an arbitration clause that had been freely and collectively bargained between an employer and a union. The board also concluded that its ruling was not inconsistent with Concepcion or Stolt-Nielsen, in which the Supreme Court held that a party cannot be required to submit to arbitration on a class-wide basis without consent, because neither Supreme Court case involved the waiver of rights protected by the NLRA or employment agreements. In further distinguishing Concepcion, the board pointed to the fact that Concepcion involved a conflict between the FAA and state law, thus implicating the Supremacy Clause, while the case at hand involved the argument that two federal statutes conflict. Finally, the board explained that nothing in its holding required employers to permit, participate in, or be bound by a class-wide or collective arbitration agreement—it held only that

    employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial. So long as the employer leaves open a judicial forum for class and collective claims, employees' NLRA rights are preserved without requiring the availability of classwide arbitration. Employers remains free to insist that arbitral proceedings be conduction on an individual basis.

    Keywords: litigation, commercial, business, arbitration, National Labor Relations Board, National Labor Relations Act

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