NLRB Finds Employee Arbitration Agreement Waiving Class Claims Violates Federal Labor Law

In DR Horton, a decision issued on January 3 and applicable to most private sector employers, whether unionized or not, the National Labor Relations Board (NLRB) held that federal labor law prevents employers from requiring their employees, as a condition of employment, to agree to broad waivers that would deny their right to pursue employment-related class actions both in court and in arbitration, leaving them no forum for pursuing class or collective claims.  As a result, an important tool for managing the risk of employment-related litigation has been taken away (for now). 

The facts of the case are straightforward.  DR Horton, like many employers, required its employees to sign an arbitration agreement as a condition of employment.  The agreement required employees to arbitrate all claims arising out of their employment, and precluded arbitrators from issuing class or group relief.  As a result, employees were prevented from bringing class or collective actions in any forum.  Relying on this agreement, DR Horton refused to arbitrate a class action alleging that it had misclassified certain employees as exempt from the protections of the Fair Labor Standards Act (FLSA).

 

Not so fast, according to the NLRB.  Tracing federal labor law back to its origins, the NLRB found that the filing of a class action “to redress workplace wrongs or improve working conditions” is activity at “the core” of what Congress intended to protect when it enacted the National Labor Relations Act in 1935.  This intent, the NLRB reasoned, is reflected in Section 7 of the Act, which gives employees the right to engage in “concerted activities” for the purposes of “mutual aid or protection.”  Relying on Section 7, the NLRB found that Employers cannot compel their employees, as a condition of employment, to entirely waive the right to bring class or collective actions.

 

The NLRB’s ruling in DR Horton clashes with the U.S. Supreme Court’s recent decision in AT&T Mobility v. Concepcion, which held that arbitration clauses that waive the right to bring class claims entirely (in the commercial contract context) may be lawful and enforceable.  But unless and until the courts intervene to resolve this tension, requiring your employees to completely waive the right to bring employment-related class or collective actions - a common feature of arbitration agreements - is probably no longer permissible under federal labor law.

 

If You're Interested In Learning More, Sign Up For Our Webinar

Stoel Rives is hosting a webinar on January 11, 2012, to address employee arbitration agreements generally and the DR Horton decision in particular.  Click here if you're interested in learning more or attending.

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