NLRB Decision Attacks Class and Collective Action Waivers in Mandatory Arbitration Agreements

In a far-reaching decision issued on Friday, January 6, 2012, two members of the National Labor Relations Board (NLRB) ruled it is a violation of federal labor law for employers to require employees to sign mandatory arbitration agreements that do not allow for employees to bring class or collective claims before an arbitrator or court.

The decision focused on a mutual arbitration agreement used by national home construction company D.R. Horton under which both employees and the company waived their right to have their respective claims heard by a judge or jury and agreed to bring all claims to an arbitrator on an individual basis. As is typical with many arbitration agreements, D.R. Horton’s agreement provided that an arbitrator was not able to consolidate employee claims or fashion multiple employee claims in a class or collective action; rather, an arbitrator was able to examine the merits of employee claims only on an individual basis.

In its 2-0 decision, the Board held joining workplace claims as a class or collective action constitutes protected concerted activity under Section 7 of the National Labor Relations Act (NLRA) and the agreement unlawfully barred employees from engaging in such activity. The Board ruled individual agreements cannot preclude employees from pursuing class or collective claims in all forums. The Board’s ruling expressly left the door open for employers to continue to utilize similar agreements with their employees as long as the agreement allows employees to use a judicial forum for class or collective claims while permitting arbitration of only individual claims.

The ruling is unfortunate but not surprising given the Board’s composition and was handed down on the last day of controversial Member Craig Becker’s term as a recess appointee. Chairman Mark Pearce and Becker joined in finding the agreement unlawful. Member Brian Hayes recused himself from the case and therefore did not author a dissent. The case has drawn considerable interest from pro-business groups, the plaintiffs’ bar, and unions. Nineteen parties filed amicus briefs. Ogletree Deakins is intimately familiar with the case and the implications of the Board’s ruling, as the firm represents D.R. Horton in this matter, and therefore already is devising strategies to comply with the Board’s ruling while still maintaining enforceable arbitration agreements containing waivers of class and collective actions.

The Board’s decision applies only to “employers” and “employees” covered under the NLRA. Further, the decision does not affect collectively bargained waivers of employees’ rights to bring class or collective actions. If the decision stands, however, affected employers may need to revise their Alternative Dispute Resolution (ADR) policies and arbitration agreements to withstand legal challenge.