NLRB adds another wrinkle to arbitration agreement law ...

by Abigail Crouse, Esq.

In January, the National Labor Relations Board (NLRB) held that employers may not require employees to sign arbitration agreements that waive their rights to bring class or collective actions.

In a 2-0 decision, the board ex??amined a ?Mutual Arbitration Agree??ment? (MAA) that home builder D.R. Horton Inc., required employees to sign as a condition of employment. The agreement mandated resolution of all employment disputes through arbitration and prohibited the arbitrator from hearing any consolidated, class or collective claims.

As a result, employees who signed the MAA were prohibited from bringing any class or collective actions, either in court and before an arbitrator. (D.R. Horton, Inc., Case 12-CA-25764, Jan. 3, 2012)

The NLRB reasoned that such an agreement infringes on employees? rights to engage in ?concerted activities? under Section 7 of the National Labor Relations Act (NLRA).?

While the board held that an em??ployer can still require employees to bring their individual claims before an arbitrator rather than a court, the NLRA prohibits ?employers from taking away all opportunities for em??ployees to file class or collective claims, both in court and through arbitration.

Not just union shops

Does the D.R. Horton decision apply to nonunion employers??Yes.?

The NLRA protects ??employees? rights ?to en??gage in ? concerted activities for the pur?pose of ? mutual aid or protection ?? whether or not they are members of a union.?The filing of a class or collective action by ??employees under the FLSA or any law that affects wages, hours or working conditions, is considered protected activity under Section 7 of the NLRA.

The D.R. Horton MAA was an individual agreement that had been drafted by the employer; it was not the product of collective bargaining with a union.?Thus, the NLRB?s decision in D.R. Horton affects arbitration agreements for all employers.?

Note: The NLRA excludes supervisors from its definition of ?employee,? so the D.R. Horton decision does not affect arbitration agreements with supervisors.

Supreme Court weighed in earlier

The decision comes as somewhat of a surprise after the Supreme Court?s holding last year in AT&T Mobility LLC v. Conception (131 S. Ct. 1740, 2011). In that case, the court ruled that the Federal Arbitration Act (FAA) pre-empts states from prohibiting enforcement of agreements that bar arbitration of class-action disputes.

The Supreme Court had reversed a 9th Circuit Court of Appeals decision that a class-action arbitration waiver in AT&T?s wireless service agreement was unconscionable and unenforceable under California state law. The court held that the FAA pre-empted the California law.

The NLRB distinguished the AT&T Mobility decision, reasoning that the issue in D.R. Horton involved two federal statutes, not federal versus state law.?Where two federal statutes were potentially at odds, the board stated that it must construe them to coexist if possible.?

In doing so, it found that the FAA leaves open the possibility for an arbitration agreement to be invalidated if it interferes with substantive legal rights, such as the right to en??gage in concerted activities under the NLRA.?Additionally, the NLRB pointed out that its decision only affects agreements between employers and their employees, as opposed to the vast number of potential claimants at issue in AT&T Mobility.

Unfair labor practice charges

The D.R. Horton decision also found that the MAA violated the NLRA because its language, in which an employee waived ?the right to file a lawsuit or other civil proceeding re??lating to Employee?s employment,? gave employees the reasonable belief that they were prohibited from filing an unfair labor practice charge (ULP) with the board.

The NLRB noted that the MAA did not contain any language specifically informing employees that they were not waiving their rights to file a ULP.

This is another important aspect of the board?s holding. Employers should make sure that any arbitration agreements they have in place don?t give employees an impression that they are prohibited from filing a ULP with the NLRB or a charge with any other administrative agency.

What employers should do

The D.R. Horton decision will probably be appealed. In the meantime, however, the ruling holds important implications for employers.?Carefully review any arbitration agreements that you require employees to sign as a condition of employment to ensure that they:

1. Do not prohibit all forms of class or collective action by employees, and
2. Do not prevent employees from filing claims with the NLRB or any other administrative agency.

Consult your attorney about any changes you may need to make.

________________________________________

Author: Abigail Crouse is a principal at the law firm of Gray Plant Mooty and practices in the areas of employment law and higher education law. Contact her at (612) 632-3044 or abigail.crouse@gpmlaw.com.

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