• Fifth Circuit Further Strengthens Class Action Waivers with Latest DR Horton Decision
  • December 5, 2013 | Authors: Raanon Gal; Leanne C. Mehrman
  • Law Firm: Ford & Harrison LLP - Atlanta Office
  • Executive Summary: In a long awaited decision, D.R. Horton v. National Labor Relations Board, (Case. No. 12-60031, Dec. 3, 2013), the Fifth Circuit Court of Appeals vacated the January 2012 ruling of the National Labor Relations Board ("NLRB") that invalidated an employee's arbitration agreement containing a class action waiver.

    In a 2-1 decision, the majority concluded that, in issuing its order, the NLRB had not given proper weight to the Federal Arbitration Act ("FAA"). Specifically, the majority stated:

    The NLRA should not be understood to contain a congressional command overriding application of the FAA. . . . Because the Board's interpretation does not fall within the FAA's "saving clause," and because the NLRA does not contain a congressional command exempting the statute from application of the FAA, the [arbitration agreement] must be enforced according to the terms.

    This opinion was not a complete win for D.R. Horton. The NLRB had found that the language contained in the arbitration agreement could lead employees to reasonably believe "that they were prohibited from filing unfair labor practice charges." The Fifth Circuit agreed with the NLRB and concluded that certain incompatible language contained in the arbitration agreement could be misconstrued. Thus, the court enforced the NLRB's order "that Section 8(a)(1) has been violated because an employee would reasonably interpret the [arbitration agreement] as prohibiting the filing of a claim with the [NLRB]."

    While the Fifth Circuit only covers Texas, Mississippi and Louisiana, this case is consistent with the majority of district and circuit courts that have scrutinized the NLRB's analysis on the issue.

    This decision is good news for employers and should further solidify the enforcement of class action waivers in arbitration agreements, resulting in less liability in hot-topic areas for employers, such as collective actions brought under the Fair Labor Standards Act ("FLSA").

    More than ever, employers face lawsuits for overtime compensation and minimum wage violations brought under the FLSA. Popular causes of action for plaintiffs' attorneys include compensation for time spent donning and doffing, improper classification of employees as independent contractors, and employee exemptions from overtime pay requirements. The combination of the complexity of the FLSA with the sometimes unsettled law leads many employers to violate the FLSA without even realizing it. To make matters worse, violations usually are not limited to one employee, but apply to a class of employees and extend over a lengthy period of time. These minor mistakes result in significant liability to unsuspecting employers.

    The D.R. Horton decision reinforces the availability of an important tool to stop these class/collective action lawsuits from the start. Savvy employers will, as a condition of employment or continued employment, require each employee to sign arbitration policies that limit the employee's ability to bring class/collective actions.

    But, as the D.R. Horton case makes clear, in order to be enforceable, the language of a class/collective action waiver must be clear and unequivocal. Moreover, the agreement must not only clearly state that all of the remedies available to the employee under the federal and state statutes, such as attorney's fees and costs, will be available in arbitration, but also must be clear that an employee is not prohibited from filing unfair labor practice charges.

    It is anticipated that this case, along with the similar cases in other Circuits, will be appealed to the United States Supreme Court.