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Case Watch: For Arbitrators

Mandatory Arbitration Agreements and Class Actions: The Latest Word, from the NLRB

The latest position on whether or not class action waivers in employment arbitration agreements are enforceable comes from the Decision and Order of the National Labor Relations Board in D.R. Horton, Inc. and Michael Cub, Case 12 – CA-25764, issued January 3, 2012.

In Horton, the Board framed the issue as: whether an employer violates the National Labor Relations Act (NLRA) when it requires employees to sign an agreement that precludes them from filing joint, class, or collective claims regarding wages, hours or other working conditions against the employer in any arbitral or judicial forum.  The Board held that such a mandatory agreement unlawfully restricts employees’ NLRA Section 7 rights to engage in concerted activities for mutual aid or protection.

Initially one might ask how to reconcile Horton with the recent Supreme Court ruling in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011).  There the Court ruled that Section 2 of the Federal Arbitration Act (FAA) preempts state efforts to limit the parties’ right to contract for arbitration – and in particular to include class action waivers in those contracts – as a means to resolve consumer disputes.  The California courts had said that as a matter of state contract law, such waiver provisions were unconscionable and that the arbitration agreements that included them were unenforceable.  One basic difference between the two decisions is that Horton involved arbitration of statutory rights enacted by Congress in the NLRA, while Concepion involved arbitration of consumer rights in a cell phone marketing agreement.   Thus, in Horton, the NLRB could distinguish the Concepcion decision, but it still had to address the conflict created by other Supreme Court decisions giving liberal interpretation to arbitration agreements for the resolution of employment disputes.

Where employees are engaged in collective actions protected by law, the NLRB has traditionally determined whether or not employer activities constitute Unfair Labor Practices.  In Horton, the Board ruled that waivers of collective actions (class actions) in arbitration agreements in favor of individual actions did not constitute enforceable arbitration agreements recognized under federal labor law.

However, even in arbitration of statutory rights, the standards applied by the Supreme Court in Gilmer v. Interstate/Johnson Lane Corp. 500 U.S. 20 (1991), must be considered.  In Gilmer, the Court permitted the arbitration of statutory rights cases because, “so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.”  The NLRB concluded that Gilmer required the Board to find the Horton preclusion clause unlawful because the rights set forth in NLRA Section 7 are entitled to protection.

“[W]e conclude that finding the [Mandatory Arbitration Agreement] unlawful, consistent with the well established interpretation of the NLRA and with core principles of Federal labor policy, does not conflict with the FAA and, even if it did, the finding represents an appropriate accommodation of the polices underlying the two statutes.”

Employment arbitration of statutory rights is enforceable, the NLRB said, so long as the party does not forgo the substantive rights afforded by the statute.  Noting that Gilmer did not address Section 7 or the validity of a class action waiver, the Board said that the right it sought to protect in Horton was the right of employees to engage in collective action under the NLRA.  The Board said that such protection was substantive, not procedural:  “Rule 23 may be a procedural rule, but the Section 7 right to act concertedly by invoking Rule 23, Section 216 (b) or other legal procedures is not.”

The Board interpreted Section 2 of the FAA as permitting the National Labor Relations Board authority to invalidate an arbitration agreement in whole or in part upon any “grounds as exist at law or in equity for the revocation of any contract.”  If the FAA and the NLRA conflict, the Board said, then the FAA would have to give way. The Board then gave itself the authority to resolve any conflict between the two.

The Board claimed that its decision in Horton only compelled employers to stop requiring employees to waive their NLRA rights to collectively pursue litigation or employment claims in all arbitral and judicial forums:

“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 class wide arbitration.  Employers remain free to insist that arbitral proceedings be conducted on an individual basis.”

The Board also stated that it did not expect its holding to be far reaching; only those employment agreements “that would be reasonably read to bar protected, concerted activity” would be vulnerable:

“For example, an agreement requiring arbitration of any individual employment related claims, but not precluding a judicial forum for class or collective claims, would not violate the NLRA, because it would not bar concerted activity.”

Further the Board said Horton did not determine whether an employer can require employees, as a condition of employment, to waive their right to pursue class or to collective action in court so long as the employees retain the right to pursue class claims in arbitration.  Despite these confusing statements, the Board said:

“[O]ur holding rests not on any conflict between an agreement to arbitrate and the NLRA, but rather solely on the conflict between the compelled waiver of a right to act collectively in any forum, judicial or arbitral, in an effort to vindicate workplace rights and the NLRA.”

Note to Georgia Arbitrators: The impact of this decision will have no affect on arbitrations that are unrelated to statutory protections of collective actions by employees granted by the NLRA.  Whether the Board’s reading will be sustained will depend on the outcome of likely appeals of this decision.  A recent California court upheld the arbitration clause including the class action waiver where upon investigation it concluded the waiver was not “compelled” but voluntary on the part of the employee.


John Allgood is of counsel at Ford & Harrison.  For more than 20 years he has arbitrated and mediated cases in commercial, employment, construction and securities law, as well as in real estate and anti-trust matters.  An adjunct professor of ADR at Emory University School of Law, he was a member of the U.S. Olympic Committee panel of arbitrators during the 1996 and 1998 Olympic Games.

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