NLRB Bans Attempts to Restrict

Class Claims of Non-Union Employees

     Employers suffered yet another setback recently at the National Labor Relations Board (NLRB) when the NLRB announced a ruling striking down most arbitration agreements which contain a so-called class action waiver. The case involved D.R. Horton. As a result of this opinion, employers are no longer permitted to require employees to sign arbitration agreements that prevent employees from joining together to pursue employment-related claims, whether in arbitration or in court.

     This case seems to be directly at odds with last year's pro-company Supreme Court ruling in AT&T Mobility v. Concepcion. In Concepcion, the high court approved class action waivers in consumer contracts. Following Concepcion, most labor law experts believed that employers were now free to enter into private arbitration agreements with employees which barred employees from bringing class employment claims.

     Not only does the NLRB's decision invalidate such agreements, it also says that it is a violation of the National Labor Relations Act to require employees to sign them or to even keep a copy of such an agreement (that was signed in the past) in a personnel file.

     D.R. Horton, Inc. had required its employees to sign an arbitration agreement which called for employment disputes and claims to be settled by a neutral arbitrator. The agreement permitted an arbitrator to hear only an individual employee's claims, and did not permit group claims or any type of class or collective award.

    When D.R. Horton opposed a former employee's attempt to arbitrate a class overtime claim, the employee filed an Unfair Labor Practice charge with the NLRB. He argued that the agreement unlawfully restricted his right to engage in "concerted action", in violation of the NLRA. The NLRB relied upon a 1978 Supreme Court ruling which said the law protects employees' efforts to "improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee-employer relationship." According to the Court, this right includes an employee's ability to pursue collective or group grievances and class action litigation.

     D.R. Horton argued that the law permitted it to have a class action waiver agreement after the Supreme Court's Concepcion decision, but the NLRB disagreed. In doing so, the NLRB acknowledged that although individual employees could not legally enter into one of these agreements, a union may do so through collective bargaining.

     Recognizing the controversy it was brewing up, the Board emphasized that its decision was limited to "employees" under the NLRA. Thus, employers may continue to require managers and supervisors, as defined in the NLRA, to give up their right to bring class claims. In an attempt to appease employers, the NLRB also suggested that an employer could require individual-only arbitrations if it allowed employees to pursue class claims in court. The decision has no bearing on businesses not covered by the NLRA, such as the air and rail industries, which are subject to the Railway Labor Act rather than the NLRA. The NLRB noted that it also would have limited application to employees who are not covered by the FAA, such as interstate truck drivers, since the Concepcion decision would not apply to any arbitration agreement they might sign.

     The Board shirked the more difficult questions of (1) whether an employer could require an employee to bring class claims only through arbitration, and (2) whether an employer and an employee could enter into an agreement, which is not a condition of employment, to resolve potential claims through non-class arbitration.

     The NLRB issued a remedial Order requiring D.R. Horton to post an NLRB approved Notice for 60 days at all locations where employees have been subject to the arbitration agreement stating that:

• Employees have a right to join a union;
• Employees have a right to bring class claims against the company;
• The company will not interfere with those rights; and
• The company will not enforce its unlawful arbitration agreement, and it will advise each employee who signed one that the agreement will not be used unless it is corrected.

     In light of this important ruling, employers who have arbitration or other agreements that require employee claims to be arbitrated should consider revising them, particularly if the agreements do not make an exception for class claims and NLRB matters.

     Unfortunately, the class action waiver issue is not likely to go away soon. Under the law, even if D.R. Horton succeeds in convincing a federal court that its agreement is lawful, the NLRB may nevertheless continue prosecuting employers for the violation until the U.S. Supreme Court weighs in on the issue.

     Please contact us if we can assist your company in reviewing any arbitration agreements you may have in place. 

Sincerely,

Richard S. Rosenberg

Partner

BRG&S, LLP