NLRB Finds Class Action Waivers in Arbitration Agreements Invalid
In October of last year, we told you about AT&T Mobility v. Concepcion, in which the United States Supreme Court upheld the use of a class action waiver in a consumer arbitration agreement. In light of this decision, we encouraged employers to consider adding such waivers to their arbitration agreements or entering into arbitration agreements with class action waivers if they did not already have them. The National Labor Relations Board (NLRB), however, recently made clear that it has a different opinion about whether Concepcion, a consumer case, is applicable in the employment context. Employers with or considering class action waivers in their arbitration agreements should pay attention to this increasingly unsettled area of the law.
In 2006, a national home building company, D.R. Horton, Inc. started requiring its new and current employees to sign arbitration agreements. The agreements included a prohibition against employees participating in or bringing class action claims, in arbitration or in court. When a supervisor who believed he had been misclassified as such requested arbitration on behalf of similarly situated employees, the employer argued that the employee and his co-workers had waived their right to bring such a claim. The supervisor then filed a complaint with the National Labor Relations Board (NLRB), arguing that the arbitration agreement violated the National Labor Relations Act (NLRA).
Last week, the NLRB issued its ruling, agreeing with the supervisor and concluding that the class action waiver in D.R. Horton Inc.’s arbitration agreement violated the employees’ rights under Section 7 of the National Labor Relations Act by limiting their ability to engage in “concerted activity.” The NLRB further concluded that the class action waiver clause could be interpreted as prohibiting employees from filing an unfair labor practice charge with the Board, another violation of the NLRA.
The NLRB determined that neither the Federal Arbitration Act (FAA) nor the Concepcion case precluded its decision. It reasoned that while the FAA allows employers and employees to enter into individual arbitration agreements, it does not require those employees to give up substantive rights protected by other laws.
The NLRB made clear that employers may continue to require arbitration of individual claims. It also said that employers do not necessarily have to permit class-wide arbitration, but they cannot bar both class arbitration and class action lawsuits, leaving employees with no route to a collective action. (Interestingly, the decision does not say whether employers can require employees to waive class claims in court, while continuing to allow class claims in arbitration.)
Like any other NLRB ruling, this ruling applies both to union and non-union employers under the jurisdiction of the NLRB. This ruling will undoubtedly be reviewed by an appellate court, with a United States Supreme Court decision possible someday as well. For now, however, if you have agreements with your employees to arbitrate their claims, and those agreements include class action waivers, you risk unfair labor practice charges if you seek to enforce those waivers.
The January 3 decision came at the very end of the term of Board Member Craig Becker, whose recess appointment expired last week. Since then President Obama has made three new recess appointments to the NLRB. Without these appointments, the NLRB would have been down to two members and therefore unable to act. However, by bypassing the Senate, many constitutional experts believe the President has violated his recess appointment authority under Article II, Section 2 of the U.S. Constitution because the Senate is not in “recess.” Employers will continue to face enormous uncertainty until the validity of these appointments is resolved, and it may take months for an appropriate case to result in a court decision on this point. In the meantime, what remains clear is that the President and the NLRB will continue to push a strongly pro-labor agenda.
We will post developments as they occur. In the meantime, if you have questions about the D.R. Horton decision or arbitration agreements and class action waivers generally, please call/email Katy Rand at (207)791-1267/krand@pierceatwood.com, or another member of Pierce Atwood’s Employment Group.