In a decision issued January 3, and released on Friday, January 6, the National Labor Relations Board (NLRB) held that a mandatory arbitration agreement which required all employment-related disputes to be submitted to arbitration, but also prohibited the arbitrator from considering class or collective action claims, violated the National Labor Relations Act (NLRA). D.R. Horton, Inc., Case 12-CA-25764 (January 3, 2012). A copy of the decision can be found here. The case arose out of a claim by a former "superintendent" for the employer alleging that he had been misclassified as a salaried exempt employee. The former employee sought to initiate an arbitration proceeding on behalf of himself and a nationwide class of similarly situated superintendents to pursue claims for unpaid overtime under the Fair Labor Standards Act. The employer refused, relying on the arbitration agreement's prohibition against arbitration of collective claims. The NLRB, in an opinion by Chairman Pearce and Member Becker (with Member Hayes recusing himself), held that the arbitration agreement violated Section 8(a)(1) of the NLRA because it unlawfully restricted employees' rights under Section 7 of the Act to engage in protected, concerted activity.

In reaching this decision, the NLRB took an expansive view of protected, concerted activity as including a right to pursue collective or class claims for an alleged violation of another federal employment statute. The NLRB also noted that the arbitration agreement could be interpreted as prohibiting employees from filing a charge with the NLRB. Not surprisingly, the Board held that an explicit restriction on engaging in such protected activity violated the NLRA.

In its decision, the NLRB recognized the potential conflict between its holding and the Supreme Court's recent decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), in which the Court held that the Federal Arbitration Act (FAA) preempted state laws that purport to prohibit class action arbitration waivers. The NLRB attempted to distinguish Concepcion on the grounds that it involved application of the Supremacy Clause, and did not require resolution of any conflict between two federal statutes. The NLRB also downplayed the significant concerns raised by the Supreme Court in Concepcion about the impact of requiring class arbitrations on the informality and efficiency of arbitration proceedings. According to the NLRB, these concerns were less applicable in the employment context than in the consumer context, since the number of class members in any employment-related class action arbitration should not be as large (notwithstanding the nationwide description of the class for whom relief was sought in this case).

The NLRB took some pains to cast its decision in this case as a narrow one. However, the Board's holding makes clear that it applies to any worker who meets the definition of "employee" under the NLRA. Thus, even though specific individuals (e.g., statutory supervisors) are excluded from the coverage of the Act, and thus, would not be affected by this decision, the Board's decision applies to all private sector employers potentially subject to NLRB jurisdiction, not just unionized workplaces.

The NLRB also made clear that its decision did not invalidate an arbitration agreement requiring arbitration of individual employment-related claims. In addition, the NLRB suggested that an arbitration agreement which allows an employee to opt out and to pursue class or collective claims in a judicial forum would not violate the NLRA. Finally, the NLRB left open "the more difficult" question of "whether an employer can require employees, as a condition of employment, to waive their right to pursue class or collective action in court so long as the employees retain the right to pursue class claims in arbitration."

Notwithstanding the NLRB's efforts to minimize the impact of its decision, this case represents a continuation of the Board's recent efforts (especially evident in its evolving position in social media cases) to expansively define "protected concerted activity" and to hold unlawful any employer policy which might impinge on that activity as it has been defined. In this case, the NLRB's efforts are almost certain to be challenged, and may not withstand judicial scrutiny. One potential problem with the Board's decision is that it was issued by a two-member panel (since Member Hayes did not participate), and so may be subject to challenge under the Supreme Court's decision in New Process Steel v. NLRB, 130 S.Ct. 2635 (2010). Moreover, despite the NLRB's attempts to distinguish Concepcion, its decision directly contradicts the policy rationale supporting the Supreme Court's holding in that case. Unless and until the NLRB's decision is overturned, however, all employers (not just unionized employers) should review their policies and agreements governing arbitration of employment-related claims, and determine whether changes are necessary.

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