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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions