NLRB Bars Class Action Waiver Arbitration Agreements

By Patricia Costello Slovak

In a decision that will affect non-union employers even more than union employers, the National Labor Relations Board (NLRB, or Board) has decided that mandatory arbitration programs that require that all disputes be decided in individual arbitrations violate the National Labor Relations Act (NLRA or Act). In D.R. Horton, Inc., 357 NLRB No. 184, issued on January 6, 2012, the Board found that the employer's Mutual Arbitration Agreement "unlawfully restricts employees' Section 7 rights to engage in concerted action for mutual aid or protection."

D.R. Horton is a home builder that requires all employees to execute an agreement to submit any disputes or claims to arbitration rather than the courts. Such mandatory arbitration agreements have been deemed enforceable by the Supreme Court so long as they meet certain fairness and consideration standards, which the agreement here apparently did. The Board acknowledged that such programs, in and of themselves, do not violate the NLRA. However, the D.R. Horton program also included a provision in which the arbitrator was limited to dealing with employee claims on only an individual basis and did not have authority to consolidate claims or award class relief. Such provisions are common in mandatory arbitration programs in order to ensure that employees' claims are dealt with quickly and on their own merits. As the United States Supreme Court noted in AT&T Mobility v. Concepcion, 130 S.Ct. 1740 (2011), arbitration is not well-suited to deal with class action claims.

The Board, however, viewed this limitation as infringing on employees' right to act collectively on issues related to the terms and conditions of employment. The majority¹ compared this prohibition on class arbitrations as akin to a prohibition on union organizing, which would clearly violate the Act. The majority rejected the argument of the employer and many amici (of which Schiff Hardin was one, on behalf of the National Retail Federation) that the Supreme Court has held that such limitations on class arbitrations are lawful and enforceable.

Although the D.R. Horton decision may well be appealed, for the moment it is the law under the NLRA. Employers who currently have mandatory arbitration programs that prohibit class claims should review them in order to determine what, if any, action they wish to take in response to the Board's decision.

If you have any questions about this issue, please contact one of the members of our Labor and Employment group.

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