United States: Fifth Circuit Holds That NLRB Erred In Finding That Arbitration Agreements With Class Action Waivers Violate NLRA

On December 3, the Fifth Circuit, in D.R. Horton, Inc. v. National Labor Relations Board, rejected the National Labor Relations Board's ruling that Horton's mandatory arbitration agreement containing a class action waiver violated § 7 of the National Labor Relations Act. No. 12-60031, 2013 WL 6231617 (5th Cir. Dec. 3, 2013). The court reasoned that the NLRB "did not give proper weight to the Federal Arbitration Act," which made the arbitration agreement enforceable. Id. at *1. And according to the court, the NLRA, which protects the right of employees to engage in concerted activity, "should not be understood to contain a congressional command overriding the application of the FAA." Id. at *13. While this ruling certainly constitutes good news for employers, the Fifth Circuit added one cautionary note. The court found that although the class waiver was enforceable, Horton's arbitration agreement violated §§ 8(a)(1) and (4) of the NLRA because it included language that could lead employees to reasonably believe that they were precluded from filing unfair labor practice charges. Id. at *14. As a result, the court enforced the Board's order that Horton revise the document.

Case Background

Beginning in 2006, Horton required all employees to sign, as a condition of their employment, an agreement to submit all of their employment-related disputes to binding arbitration. Under this agreement, employees were barred from pursuing class or collective claims in an arbitral or judicial forum, and all employment-related disputes were to be resolved through individual arbitrations. In 2008, former Horton employee Michael Cuda sought to initiate a nationwide collective action via arbitration, claiming that he and similarly situated employees had been misclassified as exempt from the overtime provisions in the Fair Labor Standards Act. Noting that the arbitration agreement prohibited collective actions, Horton invited Cuda to file an individual arbitration proceeding. In response, Cuda filed an unfair labor practice charge in which he alleged that the class-action waiver violated the NLRA.

The Board's Decision

The NLRB concluded that Horton violated § 7 of the NLRA, which allows employees "to engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection." 29 U.S.C. § 157. According to the Board, the NLRA protects the right of employees to "join together to pursue workplace grievances, including through litigation and arbitration." Horton, 2013 WL 6231617, at *7. Thus, in the Board's opinion, by requiring employees to refrain from collective or class claims, Horton's arbitration agreement infringed on employees' substantive § 7 rights. The Board also held that Horton's arbitration agreement violated § 8(a)(1) of the NLRA because it contained language that could lead employees to believe that they were barred from filing unfair labor practice charges.

The Fifth Circuit's Analysis

Reviewing the NLRB's decision, the Fifth Circuit recognized that the Board is entitled to judicial deference in interpreting the NLRA. The court also recognized, however, that the Board cannot interpret the NLRA in a manner that infringes on other federal statutory schemes such as the Federal Arbitration Act ("FAA").

It is well-settled that the FAA requires that arbitration agreements be enforced according to their terms. The Horton court noted that there were two potential exceptions to this rule. The first was the FAA's "savings clause," which provides that arbitration agreements are enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. According to the Board, Horton's arbitration agreement violated the collective action provisions of the NLRA, thereby triggering the application of the savings clause. But the Fifth Circuit disagreed, relying on the Supreme Court's decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).

Like the California statute that the Court invalided in Concepcion, the Board's interpretation prohibits class action waivers. The Board claimed, however, that its interpretation was different, arguing that, unlike the California statute, employers could prohibit class-wide arbitration as long as they left open a judicial forum for class and collective claims. The Fifth Circuit found this to be a distinction without a difference. Ultimately, such an arrangement would only operate to discourage arbitration. Plaintiffs' lawyers would have virtually no incentive to arbitrate individual claims when they may do so for a class and earn much higher fees. Likewise, when faced with inevitable class litigation, employers would have less incentive to continue resolving potentially duplicative claims on an individual basis. Thus, the Fifth Circuit concluded that"[r]equiring a class mechanism is an actual impediment to arbitration and violates the FAA." Id. at *11.

The second potential exception was whether another statute's "congressional command" precluded the FAA's application. Id. at *11. So the question in Horton was: Did the NLRA contain a congressional command that overrode the FAA? The Fifth Circuit said no. In order for such a command to exist, it must be "discoverable in the text," the statute's "legislative history," or "an inherent conflict between arbitration and the [statute's] underlying purposes." Id. at *11 (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991)). Here, the NLRA's text contains no language overriding the FAA. The legislative history contains no disavowal of arbitration either. And there is no inherent conflict between the FAA and the NLRA's purpose. To the contrary, the NLRA actually permits and requires arbitration. As the Board itself acknowledged, "arbitration has become a central pillar of Federal labor relations policy and in many different contexts the Board defers to the arbitration process both before and after the arbitrator issues an award." Id. at *12.

Accordingly, because the FAA's savings clause does not apply to the Board's interpretation and because the NLRA does not contain a congressional command exempting the statute from application of the FAA, the Fifth Circuit held that Horton's arbitration agreement must be enforced according to its terms. The court also held, however, that Horton's arbitration agreement could reasonably be understood by employees to bar them from bringing an unfair labor practice case before the NLRB. Horton was simply not clear enough in carving out its employees' right to bring such agency charges. Accordingly, the Horton court enforced the NLRB's order that the company revise the document.

Other Issues

In addition to the underlying merits, the court also acknowledged the existence of the constitutional question of whether the Board's decision was valid in light of the D.C. Circuit's opinion in Noel Canning v. NLRB, 705 F.3d 490 (D.C. Cir. 2013), cert. granted 133 S. Ct. 2861 (U.S. June 24, 2013). But Horton never challenged the constitutionality of the panel's appointment, and this question is not a jurisdictional one. Rather, it is an issue that the court may decide in its discretion, which should be exercised only in "rare cases." Horton, 2013 WL 6231617, at *3. Thus, given the current circuit split on this question that the Supreme Court is set to resolve, the Fifth Circuit declined to weigh in, noting that it had little to add "to the percolation of the issue other than to declare which side of the split we take." Id.1

What Does This Mean for Employers?

Noting that it was "loath to create a circuit split," the Fifth Circuit by virtue of its 2–1 decision in Horton has now joined the Second, Eighth, and Ninth Circuits in rejecting the Board's view that class action waivers in arbitration agreements are unenforceable. Id. at *14. With this growing body of law, coupled with recent Supreme Court decisions like Concepcion and American Express v. Italian Colors Restaurant, it is becoming increasingly safe for employers to craft arbitration agreements requiring employees to waive their right to proceed collectively or on a class basis, and to submit their employment-related disputes to binding individual arbitration. But there is still cause to proceed with caution. Some courts, including some in California, are still refusing to enforce class waivers in arbitration agreements. See, e.g., Franco v. Arakelian Enterprises, Inc., 149 Cal. Rptr. 3d 530, 533 (Cal. Ct. App. 2012), review granted, 294 P.3d 74 (Cal. 2013). And until the Board changes its position that class waivers in mandatory arbitration agreements violate the NLRA, or until the Supreme Court weighs in, employers may still be forced to engage in costly litigation over unfair labor practice charges challenging such waivers. Finally, as the Fifth Circuit in Horton held, it is important that these agreements make clear that employees may still bring certain agency charges. In light of these developments, employers should reevaluate any existing arbitration agreements and take care in drafting new ones to ensure, among other things, that they include plain language explaining the requirement that employees resolve all of their employment-related claims through individual binding arbitration does not preclude these employees from filing charges or complaints with the NLRB, the EEOC, or other federal and state administrative agencies.

Footnotes

1. The court also unanimously disposed of Horton's other arguments that the NLRB lacked authority to decide the unfair labor practice case, including Horton's argument that the Board did not have authority to act because it lacked the necessary quorum of three members and Horton's claim that one panel member's appointment expired before he participated in the NLRB's decision.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Brian Jorgensen
James S. Urban
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.