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  1. SUMMARY

The National Labor Relations Board (NLRB) struck down mandatory class action waivers in employment agreements.  D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 6, 2012).  The two-member panel (the sole Republican appointee was recused) held the subject Mutual Arbitration Agreement (MAA), providing all employment disputes be subject to arbitration exclusively and waiving employee participation in “collective” or “class” actions, violated Section 8(a)(1) of the National Labor Relations Act (NLRA).  In so ruling, the NLRB reversed the administrative law judge’s finding of law on this issue.  The employer has appealed to the Fifth Circuit, and a briefing schedule is pending.

  1. BACKGROUND

D.R. Horton involved an unfair labor practices charge by construction superintendent Michael Cuda and “similarly situated” superintendents, asserting the company was misclassifying its superintendents as exempt from the requirements of the Federal Labor Standards Act (FLSA).  After Cuda’s attorney provided the respondent with a notice of intent to arbitrate on behalf of the superintendents, the company replied that the notice was ineffective based on the “class and collective action” waiver in the MAA.  Cuda filed an unfair labor practice charge, and the General Counsel issued a complaint alleging the MAA violated a Section 8(a)(1) of the NLRA.

To more fully assess the opposing legal positions, and perhaps mindful of the recent holding by the U.S. Supreme Court in AT&T Mobility, LLC. V. Concepcion, 131 S. Ct. 1740 (2011)(upholding the validity of class action waivers in consumer arbitration agreements under the Federal Arbitration Act), the NLRB invited amicus briefs.  Interested parties submitting briefs in D.R. Horton included the AFL-CIO, Service Employees International Union, Retail Industry Leaders Association, U.S. Chamber of Commerce and the EEOC.

  1. DECISION AND ORDER

The NLRB held the class action waiver was inimical to the NLRA’s history of protecting “collective pursuit of a workplace grievance.”  The opinion invoked memory of the Norris—LaGuardia Act of 1932 (predecessor of the NLRA), and referenced the “yellow-dog” contracts of that era prohibiting employees from joining labor unions, with the panel citing the need for continued federal protection of the right to “collective action.”

Specifically, the Board held the mandatory class action waiver abrogated protected Section 7 activity under the NLRA – employees’ “statutory rights to act collectively.”  As Section 8(a)(1) of the act makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7,” the MAA violated the act.

The NLRB also held its ruling was not in conflict with the Federal Arbitration Act (FAA), including a lengthy comparative analysis of the scope and purposes of the two acts.  In concluding its discussion, the Board cautioned it was not mandating class arbitration in order to protect employees rights under the NLRA; rather, its holding is limited to a finding that employers may not compel employees to waive their 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 class wide arbitration.”

Finally, anticipating reaction to its ruling in the rapidly evolving area of arbitration clause litigation, the NLRB took pains to “emphasize the limits” of its holding.  The panel noted only a “small percentage” of employment agreements would potentially be implicated by its decision, stating “only” Section 7 “employees” will be affected (without addressing whether the superintendents at issue were themselves “supervisors” expressly exempted from Section 7 protections).

  1. AFTERMATH

Several days after D.R. Horton, the U.S. Supreme Court issued another pro-arbitration decision.  InCompuCredit Corp. v. Greenwood, No. 10-948 (Jan. 10, 2012 slip op.), the Supreme Court held that as the Credit Repair Organizations Act is silent as to whether claims under the Act may be resolved through arbitration, the FAA compelled enforcement of the subject agreed arbitration clause.  Additionally, three subsequent federal district court opinions addressing D.R. Horton have distinguished the decision’s applicability (See Sanders v. Swift Transportation Co. of Arizona, 2012 WL 523527 (N.D. Cal. Jan. 17, 2012); Palmer v. Convergys Corp., 2012 WL 425256 (M.D. Ga. Feb. 9, 2012); and Johnomahammadi v. Bloomingdales, No. CV 11-6434 (C.D. Cal. Feb. 23, 2012)).

If D.R. Horton is upheld, it will be impermissible for employers to require employees to waive class action participation in both the civil and arbitration contexts as a condition of employment.  Therefore, all interested parties await the Fifth Circuit’s impending treatment of this important issue.