5th CIRCUIT UPHOLDS CLASS WAIVERS IN ARBITRATION AGREEMENTS

As the New Year begins, a late 2013 decision from the Fifth Circuit Court of Appeals – which covers Texas, Louisiana, and Mississippi – remains in the spotlight.

In December, the Fifth Circuit issued its long-awaited decision in D.R. Horton v NLRB, a case which upheld an employer’s ban on employees bringing class actions.  By way of background, the employer in the case, D.R. Horton, Inc., a home builder with operations in more than twenty states, required all of its employees – as a condition of employment – to sign a “Mutual Arbitration Agreement” that requires all employment-related disputes to be resolved through individual arbitration, with no collective or class actions permitted.

When an employee attempted to initiate a nationwide class action arbitration alleging that D.R. Horton misclassified him and similarly-situated employees as exempt from the Fair Labor Standards Act, D.R. Horton invoked the Mutual Arbitration Agreement to prevent the class action.  The employee then filed an unfair labor practice complaint with the NLRB, claiming that the class action waiver violated the National Labor Relations Act.

For its part, the Board found that the Mutual Arbitration Agreement violated the NLRA for two reasons:  (1) Its language would cause employees to reasonably believe that they could not file unfair labor practices charges with the Board; and (2) It interfered with the exercise of employees’ substantive rights to act in concert for their mutual aid or protection. 

On appeal, the Fifth Circuit agreed with the Board that the Mutual Arbitration Agreement could leave a reasonable impression that employees were waiving not only their rights to pursue class actions in court or arbitration, but also their rights to act collectively before an administrative body such as the Board.  The court disagreed with the Board, however, that the policy interfered with the exercise of any substantive rights the employees have under the NLRA.  The court noted that the use of class actions is not a substantive right, but merely a procedural right.  Furthermore, the court rejected the Board’s argument that the NLRA’s collective action provisions override the Federal Arbitration Act’s requirement that arbitration agreements be enforced according to their terms.

While this decision was a setback for the Board in the three states encompassing the Fifth Circuit, this battle is far from decided.  In fact, the Board has indicated an intent to continue taking an unfavorable view of class waivers in arbitration agreements – particularly outside of the Fifth Circuit.  Indeed, the day after the Fifth Circuit’s decision, an NLRB Administrative Law Judge in Georgia found a similar class waiver to be a violation of the NLRA, and there have been other ALJ decisions since that time which have ruled consistently with the Board’s position on the issue, even though a majority of federal courts have issued nearly three dozen decisions ruling almost universally against the Board’s view.

For now, employers are in a position where they should seriously consider the use of class action waivers, albeit with the understanding that they may be challenged before the Board initially.  Bear in mind that any such class action waiver should be written so as to ensure that it does not prevent employees from bringing charges before the NLRB.

The NLRB has four months to file a Petition with the United States Supreme Court asking them to hear an appeal in an effort to overturn the Fifth Circuit’s ruling in D.R. Horton, but it remains to be seen whether or not they will take that step.  Of course, we’ll keep you posted on this an all other critical employment legal news here at Employment Essentials.

Mark Jeffries focuses his practice in the area of labor and employment law.
 
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