On January 3, 2012, the National Labor Relations Board (“NLRB”) decided that mandatory arbitration agreements which preclude employees from joining together in a class action lawsuit or class arbitration to pursue employment-related claims violate the National Labor Relations Act (“NLRA”).  D. R. Horton, Inc. and Michael Cuda, Case 12–CA–25764.  This decision applies both to employees represented by a union and those not represented by a union.

At issue was the arbitration agreement of homebuilder D. R. Horton.  The homebuilder required employees to sign a mandatory arbitration provision as a condition of employment that precluded employees from pursuing claims in a judicial forum.  The provision further precluded the arbitrator from fashioning a proceeding as a class or collective action.  The NLRB found that the arbitration agreement effectively provided no forum in which employees may pursue a class or collective claim.

The Board determined that:

[E]mployers 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 remain
free to insist that arbitral proceedings be conducted on an
individual basis.

In rejecting a 2010 memorandum issued by the then NLRB General Counsel that class action waivers in arbitration agreements were not per se illegal under the NLRA, the Board found that the D. R. Horton agreement “not only bars the exercise of rights at the core of those protected by Section 7 [of the NLRA], but implicates prohibitions that predate the NLRA and are central to modern Federal labor policy.”

The Board also determined that its holding did not conflict with the Federal Arbitration Act (“FAA”) or the Supreme Court’s recent decision in AT&T Mobility v. Concepcion,
131 S.Ct. 1740, 1746 (2011), which upheld the use of class arbitration waivers in consumer contracts.  The Board distinguished the Supreme Court’s decision in Concepcion by finding that the arbitration provision at issue in that case did not involve the waiver of rights protected by the NLRA.

As a result of its findings, the Board required D. R. Horton to rescind or revise its arbitration agreement to make clear to employees that the agreement does not constitute a waiver of their right to maintain employment-related class or collective actions in all forums.

The Board’s decision in D. R. Horton applies to all private employers, whether or not their employees have chosen union representation.

For additional information on this ruling, please contact a member of Taft’s labor and employment group.