Fifth Circuit Upholds Legality of Class Action Waivers in Arbitration Agreements

Last week the Fifth Circuit Court of Appeals held that the National Labor Relations Act (NLRA) does not prohibit arbitration agreements waiving the right of employees to pursue employment claims on a class or collective basis.  The court’s decision rejected last year’s ruling by the National Labor Relations Board (NLRB) that home builder D.R. Horton violated the NLRA by requiring its employees to sign such agreements.  The case is D.R. Horton, Inc. v. NLRB, 5th Cir., No. 12-60031, 12/3/13.

The underlying NLRB decision invalidating class and collective action waivers was issued on January 3, 2012.  The NLRB held that class actions qualify as “concerted activities for the purpose of collective bargaining or other mutual aid or protection….”  The NLRB reasoned that because the NLRA protects the right of employees to engage in such “concerted activities,” D.R. Horton violated by NLRA by requiring employees to waive their right to bring class actions.

In rejecting the NLRB’s analysis, the Fifth Circuit noted that while the NLRA protects concerted activity, there is nothing in the NLRA explicitly guaranteeing the right of employees to bring class actions.  Further, the court found no evidence that Congress intended the NLRA to override the Federal Arbitration Act (FAA), which generally mandates that arbitration agreements be enforced according to their terms.

Although many courts throughout the country have refused to follow the NLRB’s D.R. Horton analysis, the Fifth Circuit’s reversal of the actual D.R. Horton decision should seriously undermine the argument that the NLRA prohibits class action waivers in arbitration agreements.  The NLRB may no longer follow its own D.R. Horton analysis within the Fifth Circuit (Louisiana, Mississippi and Texas), and federal courts in other circuits have already displayed disfavor towards it.  The NLRB may simply abandon its D.R. Horton analysis, or it could petition the United States Supreme Court to review the Fifth Circuit’s decision.  Recent United States Supreme Court decisions, including AT&T Mobility v. Concepcion, have championed the FAA’s strong policy in favor of arbitration agreements—including agreements with class action waivers—so the NLRB is unlikely to find relief there.

Although this decision seriously undermines one argument against class action waivers, there are others that remain unsettled.  Employers considering whether to implement an arbitration program that includes class and collective action waivers should proceed with caution.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

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