Fifth Circuit Overturns NLRB Decision in Case of Class Action Waiver

Tuesday, December 10, 2013
In D.R. Horton, Inc. v. NLRB, No. 12-60031 (5th Cir. Dec. 3, 2013), the United States Court of Appeals for the Fifth Circuit overturned the National Labor Relations Board's decision which held that the employer has violated the National Labor Relations Act by requiring its employees to sign an arbitration agreement that, among other things, prohibited an employee from pursuing claims in a collective or class action.  The Fifth Circuit upheld the Board, though, on requiring Horton to clarify with its employees that the arbitration agreement did not eliminate their rights to pursue claims of unfair labor practices with the Board.

Horton is a home builder with operations in over twenty states. In 2006,Horton began requiring all new and existing employees to sign, as a condition of employment, what it called a Mutual Arbitration Agreement. Three of its provisions are at issue in this appeal. First, the agreement provides that Horton and its employees “voluntarily waive all rights to trial in court before a judge or jury on all claims between them.” Second, having waived their rights to a judicial proceeding, Horton and its employees agreed that “all disputes and claims” would “be determined exclusively by final and binding arbitration,” including claims for “wages, benefits, or other compensation.” Third, Horton and its employees agreed that “the arbitrator [would] not have the authority to consolidate the claims of other employees” and would “not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding." These provisions meant that employees could not pursue class or collective claims in an arbitral or judicial forum. Instead, all employment-related disputes were to be resolved through individual arbitration.

The Fifth Circuit cited a number of recent pro-arbitration decisions from the U.S. Supreme Court (as well as similar decisions by other courts of appeals).  The Court concluded that NLRB failed to give “proper weight” to the Federal Arbitration Act, a law that embodies a strong federal public policy favoring the resolution of disputes through arbitration. The court began its analysis of the NLRB's reasoning with an observation that the FAA requires arbitration agreements to be enforced as written unless one of two exceptions applies.  First, arbitration agreements can be voided on any grounds that would be sufficient to void any other contract.  Second, arbitration agreements are unenforceable in cases where Congress has issued a "contrary command," such as explicit statutory language to supplant the FAA, the NLRA's legislative history or from the necessary "thrust of the NLRA."  The court specified that the NLRB, as the party opposing arbitration, had the burden to establish the applicability of the exceptions. Accordingly, the Fifth Circuit denied enforcement of the NLRB’s decision to the extent it found that the arbitration agreement was unlawful and unenforceable because it precluded the employee from raising claims on a class basis. The court did, however, enforce the NLRB’s ruling that the agreement at issue in D.R. Horton, Inc.violated the NLRA to the extent it could be interpreted to preclude employees from filing an unfair labor practice charge with the NLRB, a right which cannot be waived.
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