Jan. 10, 2012 – Recently, the National Labor Relations Board ruled that employers cannot force employees to enter individual arbitration for grievances under the National Labor Relations Act (NLRA), unless they leave open a judicial forum for class and collective claims.
Section 7 of the NLRA gives employees the right “to engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection. …”
In 2008, an employee of D.R. Horton, a Texas-based home builder operating in 20 states, filed a notice to arbitrate a class action claim, arguing the employer was misclassifying certain workers as exempt from Fair Labor Standards Act protections, like overtime pay.
The employer responded that such class action claims were barred by the employer’s mutual arbitration agreement (MAA). Cuda filed a complaint alleging the MAA violated section 8(a)(1) of the NLRA, which makes it an unfair labor practice “to interfere with, restrain, or coerce employees in the exercise” of section 7 rights.
In D.R. Horton Inc., 12-CA-25764 (Jan. 3, 2012), the NLRB ruled that D.R. Horton violated section 8(a)(1) when it required employees, as a condition of employment, to sign agreements that prevented them from filing “joint, class, or collective claims addressing their wages, hours or other working conditions against the employer in any forum, arbitral or judicial.”
Such agreements unlawfully restrict “employees’ Section 7 right to engage in concerted action for mutual aid or protection, notwithstanding the Federal Arbitration Act (FAA), which generally makes employment-related arbitration agreements judicially enforceable,” the NLRB wrote.
The NLRB’s ruling distinguished a U.S. Supreme Court case, AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), in which the court ruled that the FAA preempts state laws that classify “most collective-arbitration waivers in consumer contracts as unconscionable.”
“AT&T Mobility involved the claim that a class-action waiver in an arbitration clause of any contract of adhesion in the State of California was unconscionable,” the NLRB wrote. “Here, in contrast, only agreements between employers and their own employees are at stake.”
The Board noted that intrusions on policies underlying the FAA are limited, nexplaining that while retail and service industry contracts might cover many thousands of claimants with similar claims, most class-wide employment litigation does not.
“A class-wide arbitration is thus far less cumbersome and more akin to an individual arbitration proceeding along each of the dimensions considered by the Court in AT&T Mobility – speed, cost, informality, and risk – when the class is so limited in size,” the NLRB wrote.
But employers can still force individual arbitration through agreements, so long as a judicial avenue exists for the class claims of protected employees. “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,” the NLRB wrote.
The Board reiterated that the decision only applies to “employees” as defined in the NLRA, and “only [to] those agreements that would be reasonably read to bar protected, concerted activity.” According to a New York Times article, the decision is likely to be appealed.