Class Action Waivers, Class Actions, Class Arbitration, Employment Litigation

“Loath to create a circuit split,” the Fifth Circuit Overturns NLRB’s D.R. Horton Ruling that Class Arbitration Waivers in Individual Employment Contracts Violate the NLRA

            The Fifth Circuit Court of Appeals recently rendered its long-awaited decision in D.R. Horton, Inc. v. NLRB, No. 12-60031 (5th Cir.  Dec. 3, 2013), revised December 4, 2013, which reversed the National Labor Relations Board (“NLRB”) ruling that held a class arbitration waiver contained in an arbitration provisions of individual employment contracts violated the rights of employees under the National Labor Relations Act (“NLRA”) to engage in concerted activities.  The NLRB issued its decision in D. R. Horton, Inc. and Michael Cuda, Case 12–CA–25764, 357 NLRB No. 184 (Jan. 3, 2012) nearly two years ago and it had been pending before the Fifth Circuit since January 13, 2012.  The NLRB’s ruling served as the basis of many challenges to the validity of class arbitration waivers in employment contexts during the time it was pending before the appellate court.  You can read my InsideCounsel article, The NLRB’s view on employee rights to class actions , and our previous blog posts (here, herehere, and here) addressing the impact of the NLRB’s D.R. Horton decision.  To the benefit of employers, the Fifth Circuit ultimately ruled that the NLRB’s decision invalidating the class arbitration waiver was in error and failed to give proper weight to the Federal Arbitration Act (“FAA”).  The Fifth Circuit did uphold the NLRB’s ruling that Section 8(a)(1) of the NLRA had been violated because an employee would reasonably interpret the arbitration agreement as prohibiting the filing of a claim for unfair labor practices with the NLRB, thus requiring D.R. Horton to take corrective action.  We analyze how the Fifth Circuit weighed and reconciled the objectives of the NLRA with those of the FAA.

The NLRB View 

            As one of the early cases to address class arbitration waivers in the employment context after AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1746 (2011), the NLRB’s ruling in D.R. Horton restricted employers’ ability to protect against class actions brought by their employees.  The arbitration provision at issue prevented employees from pursuing class or collective claims in an arbitral or judicial forum, requiring all employment-related disputes to be resolved through individual arbitration.  The NLRB reasoned that the filing of class or collective actions regarding wages, hours or other working conditions is a substantive right protected by Section 7 of the NLRA.  Although the NLRB acknowledged that a class waiver in a collective bargaining agreement may be enforceable since it would be the result of an exercise of Section 7 collective action, it considered such a class waiver in an individual employment contract to interfere with the employee’s Section 7 substantive rights.  Accordingly, it deemed the waiver a violation of Section 8 of the NLRA, which prohibits employers from interfering with, restraining or coercing employees in the exercise of the rights guaranteed by Section 7.  The NLRB reasoned that Concepcion was not controlling because that case did not address the NLRA or an employment agreement, and it did not involve the potential conflict between two federal statutes.  The NLRB then relied upon Supreme Court precedent regarding arbitration and the vindication of statutory rights to find that the FAA did not conflict with its ruling.

The Circuit Court View

            The Fifth Circuit disagreed with the NLRB’s ruling, joining the Second, Eighth, and Ninth Circuits in the view that such class arbitration waivers do not violate the NLRA.  The Fifth Circuit held that the NLRB’s decision failed to properly weigh the importance of the FAA.  The court acknowledged that there was support for the NLRB’s view that Section 7 of the NLRA protects the filing of collective lawsuits.  However, the court found that the analysis must proceed further to consider the purposes of the FAA: “These cases under the NLRA give some support to the Board’s analysis that collective and class claims, whether in lawsuits or in arbitration, are protected by Section 7. To stop here, though, is to make the NLRA the only relevant authority. The Federal Arbitration Act (“FAA”) has equal importance in our review.”  Giving the FAA equal footing as the NLRA, the Fifth Circuit found that FAA precedent, including Concepcion, requires a different conclusion regarding the enforceability of class arbitration waivers in employment contracts.

            The critical factors to which the Fifth Circuit pointed in its decision to uphold the class arbitration waiver include the following:

  • Arbitration has been deemed not to deny a party any statutory right. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985).
  • The use of class action procedures is not a substantive right. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 612-13 (1997); Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326, 332 (1980).
  • There are numerous decisions holding that there is no right to use class procedures under various employment-related statutory frameworks.  For example, the Supreme Court has determined that there is no substantive right to class procedures under the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq. (“ADEA”), despite the statute providing for class procedures. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991). Similarly, numerous courts have held that there is no substantive right to proceed collectively under the FLSA, the statute under which Cuda originally brought suit. Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 298 (5th Cir. 2004); see also Adkins v. Labor Ready, Inc., 303 F.3d 496, 506 (4th Cir. 2002); Kuehner v. Dickinson & Co., 84 F.3d 316, 319-20 (9th Cir. 1996).
  • The FAA’s savings clause does not support the NLRB’s decision, based on a detailed analysis of Concepcion.  Like the statute in Concepcion, the Board’s interpretation prohibits class action waivers.  Although facially neutral in that the NLRB view only requires that employees have access to collective procedures in an arbitral or judicial forum, the effect of this interpretation is to disfavor arbitration.
  • Requiring a class mechanism is an actual impediment to arbitration and violates the FAA.
  • There is no Congressional command, either in the statutory text or its legislative history, against the application of the FAA to employment disputes.
  • No Congressional command can be inferred from an inherent conflict between the FAA and the NLRA’s purpose, especially considering that the statutes have worked in tandem in the past.
  • Although the dates of enactment of the NLRA and FAA had no impact on the court’s decision, it pointed out that there is limited force to the argument that there is an inherent conflict between the FAA and NLRA when the NLRA would have to be protecting a right of access to the class procedure under Fed. Civ. P. 23 that did not exist when the NLRA was reenacted.  The NLRA was enacted (1935) and reenacted (1947) prior to the advent in 1966 of modern class action practice.

From Here…

            After setting forth its reasoning for overturning the NLRB’s ruling, the Fifth Circuit noted that it was hesitant to create a split with the other Circuit Courts that have considered the impact of D.R. Horton:  

We add that we are loath to create a circuit split. Every one of our sister circuits to consider the issue has either suggested or expressly stated that they would not defer to the NLRB’s rationale, and held arbitration agreements containing class waivers enforceable. See Richards v. Ernst & Young, LLP, – F.3d — , No. 11-17530, 2013 WL 4437601, at *2 (9th Cir. Aug. 21, 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297-98 n.8 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1055 (8th Cir. 2013).

Given the current unanimity amongst the Circuit Courts, employers can find some solace in the hope that the Supreme Court’s recent precedent strengthening the force of arbitration agreements will continue to be applied to employment contracts.  However, they should also be prepared for continued challenges by putative class action plaintiffs, given the significant threat that the class arbitration waiver presents to plaintiffs’ opportunity to access and leverage the dispute resolution forum of their choosing.

Tony Lathrop

About Tony Lathrop

Tony Lathrop brings experience and a high level of analytical ability, professional credibility and creativity to handling litigation matters. He rigorously represents his clients' interests in a diverse range of claims and actions. A certified mediator, Mr. Lathrop has extensive experience representing business clients in mediation. His service to the legal profession in North Carolina has allowed him to develop relationships across the state that benefit the firm's clients.


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