DR Horton, a home builder, imposed a mandatory arbitration agreement. The agreement required the employee to assert all claims related to his employment in arbitration. The agreement further states:
that the arbitrator “may hear only Employee’s individual claims,” “will not have the author- ity to consolidate the claims of other employ- ees,” and “does not have authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding”The NLRB first held, in agreement with its administrative law judge, that the arbitration agreement unlawfully precluded an employee from filing a charge with the NLRB. So, arbitration agreements must carve-out the right to do so.
The groundbreaking part of the decision is that requiring an employee to arbitrate all claims and only on an individual basis violates the National Labor Relations Act's guarantee of the right to engage in "concerted activity":
[The arbitration agreement] requires employees, as a condition of their employment, to refrain from bringing collective or class claims in any forum: in court, because the [agreement] waives their right to a judicial forum; in arbitration, because the [agreement] provides that the arbitrator cannot consolidate claims or award collective relief. The [agreement] thus clearly and expressly bars employees from exercising substantive rights that have long been held protected by Section 7 of the NLRA.The Board decided this case with just two members, because the lone Republican (Member Hayes) recused himself. It is unfathomable why the Board did not wait until it had a full complement for such an important decision, but that's the way things go. We'll see if the courts decide that the decision is invalid under the Supreme Court's decision in New Process Steel v. NLRB (discussed here) (Board must have three member quorum). I did not research whether 2 + 1 recused member is sufficient or whether New Process Steel will apply.
The Board was careful to note that an arbitration agreement that permits class actions to be filed in court, while mandating arbitration of individual claims would be lawful:
We need not and do not mandate class arbitration in order to protect employees’ rights under the NLRA. Rather, we hold only that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial. 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 re- main free to insist that arbitral proceedings be conducted on an individual basis.
This decision likely will be challenged in appeals court and then to the Supreme Court. So, the arbitration see-saw is not going to stop swaying yet. For now, though, arbitration agreements containing class action waivers are subject to attack before the National Labor Relations Board. Plaintiff lawyers thinking of challenging arbitration agreements on this basis in court may run into something called "Garmon" preemption. :)
So, to sum up:
- class waivers in arbitration agreements are lawful, if the arbitration agreement applies only to claims brought on an individual basis;
- an arbitration agreement cannot prevent an employee from filing a charge
- this decision applies only to employers covered by the National Labor Relations Act (so it does not cover certain small employers, agriculture, government employees, etc.) Most private sector employers, union and non-union, are covered.
- this decision is subject to further review, and there will be lots of it.
The case is DR Horton and the decision is here.
DGV