• NLRB Invalidates Class Waiver Agreements
  • January 23, 2012 | Author: Thomas M. Cunningham
  • Law Firm: Nyemaster Goode, P.C. - Des Moines Office
  • One of the take-away lessons of 2011 is that the non-unionized employer who ignores the National Labor Relations Act (“NLRA”) does so at its peril. The National Labor Relations Board (“NLRB”) has targeted the non-unionized workplace for the vindication of employees’ NLRA Section 7 rights to engage in concerted action for mutual aid and protection.

    In D.R. Horton, Inc. (NLRB 2012), the NLRB considered the enforceability of an arbitration agreement that waived an employee’s right to participate in class and collective actions. The employee was a construction superintendent (a member of management) who wanted to pursue a collective action on behalf of all superintendents he claimed his employer misclassified as exempt from the overtime requirements of the Fair Labor Standards Act. D.R. Horton, Inc., a Florida-based home builder, mandated its employees sign an agreement that all employment-related disputes be resolved in arbitration. The arbitration agreement, however, went further and stated that the arbitrator could address only individual claims and did not have the authority to address the claims of groups of employees or fashion class or collective remedies. In other words, the agreement required the employee to waive his or her right to file joint, class or collective claims both in court and in arbitration.

    On January 6, the NLRB ruled that an employer commits an unfair labor practice when it requires employees to sign arbitration agreements that waive their rights to participate in class or collective actions in both judicial and arbitral forums. The NLRB held that this practice violated the NLRA because the right to engage in collective legal action is “a core substantive right” protected by the NLRA that cannot be eradicated by agreement.

    Since the U.S. Supreme Court’s 2001 decision in Circuit City Stores, Inc. v. Adams, which upheld the validity of arbitration agreements in the employment context, many employers have required employees to sign arbitration agreements that prohibit them from pursuing employment-related claims in court. The Horton decision was issued less than two years after the Supreme Court decided two cases that seemed to point to approval of the very waiver the NLRB invalidated. In 14 Penn Plaza, LLC v. Pyett, 556 U.S. 247 (2009), the Court held that a union could validly agree in collective bargaining to an arbitration clause that waived employees’ rights to bring employment discrimination claims in court. Similarly, in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), decided last summer, the Court struck down a California law that prohibited class action waivers as unconscionable, finding that the California rule frustrated the purpose of the Federal Arbitration Act, which was to encourage arbitration.

    The NLRB held that no conflict existed between its decision in D.R. Horton and the Supreme Court’s decisions in 14 Penn Plaza and AT&T Mobility. Distinguishing the former case, the NLRB held that a waiver of Section 7 rights in an arbitration clause that was freely and collectively bargained between a properly certified union and an employer “[did] not stand on the same footing” as an employment policy, like D.R. Horton’s mandatory arbitration agreement, that had been unilaterally imposed on employees as a condition of employment. The NLRB similarly dismissed the AT&T case as inapposite, reasoning that AT&T was a consumer class action case whereas D.R. Horton involved the workplace and substantive rights under the NLRA.

    Possibly anticipating an appeal that may eventually reach the U.S. Supreme Court, the NLRB cautioned that its holding was limited. The NLRB observed that it was not mandating class arbitration in order to protect employee rights under the NLRA; rather, its holding was simply that employers may not compel employees to waive their right to pursue class or collective litigation of employment claims in both court and arbitration. However, in the next sentence the NLRB seemed to suggest that arbitration of class claims would violate the NLRA: “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. Employers remain free to insist that arbitral proceedings be conducted on an individual basis.” (Emphasis in original.)

    During the past year, the NLRB has made its relevance to the non-unionized employer felt to a degree that many commentators considered unprecedented: protection of employees who post on social media; proposed “quickie” union election rules; and a new requirement that government contractors post a notice of its employees’ right to unionize. D.R. Horton may ultimately be regarded in the same manner. A number of commentators have already characterized D.R. Horton as a “game changer.” At the very least, the decision is expected to have a substantial impact on employers who mandate arbitration agreements as a condition of employment. Many employers with mandatory arbitration procedures may have to rewrite policies and, in some circumstances, may face class or collective actions in court.