The use of required arbitration agreements with employees who waived class or collective claims has increased in recent years. This is particularly
true following the United States Supreme Court’s April 2011 decision in AT&T Mobility v. Concepcion, in which the Supreme Court held that
the Federal Arbitration Act (FAA) preempts state laws that bar class action waivers in arbitration agreements. In particular, some employers have
valued these provisions as a way to limit the risk of putative collective actions under the Fair Labor Standards Act (FLSA).
A January 3, 2011, decision issued by the National Labor Relations Board (NLRB or “Board”) now puts the use of such arbitration agreements into
question. In D.R. Horton, a two-member majority of the Obama Board (Republican
Member Hayes recused himself) effectively ignored prior
Supreme Court precedent and a 2006 internal opinion of the Board’s General Counsel, and held that such arbitration agreements violate the National
Labor Relations Act (NLRA). In doing so, the Obama Board continues its recent trend of expanding the NLRA’s reach into the nonunion employment
environment by holding that certain employee activities are protected by the NLRA.
The arbitration agreement at issue in D.R. Horton limited the arbitrator’s authority “to consolidate the claims of other employees” and provided
that the arbitrator did not “have authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees
in one arbitration proceeding.” An employee who signed the agreement later sought arbitration on behalf of himself and a nationwide class of similarly
situated individuals for alleged violations of the FLSA. The employee then filed an unfair labor practice charge with the Board, challenging the
arbitration agreement’s prohibition on class arbitrations.
The Board held that the prohibition violated the NLRA. Specifically, it held that an employee’s filing of a class or collective claim constituted
protected concerted activity under Section 7 of the NLRA. That provision grants employees the right “to engage in . . . concerted activities for the
purpose of collective bargaining or other mutual aid or protection . . . .” 29 U.S.C. § 157. Consequently, the Board ruled that the arbitration
provision’s interference with that conduct violated Section 8(a)(1) of the NLRA, which prohibits employers from interfering with employees’ exercise of
their Section 7 rights.
Given the apparent conflict with the United States Supreme Court’s recent Concepcion decision and other Supreme Court precedent expanding the
propriety of arbitration agreements under the FAA (including those that limit the right to class treatment), the Board majority spent significant
effort trying to explain away a conflict. The Board argued that its decision did not conflict with Concepcion because Concepcion
did not involve the NLRA and addressed only the issue of whether the FAA preempted a state law. In contrast, the Board’s decision focused on the
interplay of two federal statutes. The Board, then, argued that the right to collective or class claims in employment claims (including FLSA actions)
is a substantive rather than a procedural right and that the FAA does not require the waiver of such rights.
The D.R. Horton decision continues the recent trend of expanding the definition of “concerted activity” protected by the NLRA. Essentially
ignoring Supreme Court precedent, the Board has taken it upon itself to attempt to outlaw class action arbitration waivers required by most employers.
If upheld on appeal, this decision will have a significant impact on employers throughout the country that are neither unionized nor facing any
organizing activities. Particularly following the Concepcion decision, many employers were implementing or considering the implementation of
arbitration agreements that contained class action waivers.
If you currently use employment arbitration agreements with class action waivers or are considering such agreements, please contact the authors or
other members of the McGuireWoods Labor & Employment team.