The Fifth Circuit Court of Appeals rejected the D.R. Horton, Inc. decision from the National Labor Relations Board (NLRB).
The Supreme Court and the federal courts of appeals have issued numerous decisions endorsing the use of arbitration agreements and class action waivers to limit abusive litigation against employers. However, in January 2012, in D.R. Horton, the NLRB ruled for the first time that the National Labor Relations Act (NLRA) bans employers from including class action waivers in their employment arbitration agreements. D.R. Horton appealed the NLRB's decision to the Fifth Circuit. In its opinion, that court rejected the NLRB's interpretation of the NLRA as giving employees a non-waivable right to pursue class actions against their employers.
The NAM filed an amicus brief June 6, 2012 noting that such agreements help reduce business costs, and that the Board does not have the authority to regulate the individual contracts dealing with rights not covered by the National Labor Relations Act (NLRA).
On December 3, 2013, the Fifth Circuit held that the NLRB's decision in D.R. Horton violated the Federal Arbitration Act (FAA). That statute generally requires courts to enforce arbitration agreements according to their terms, subject to limited exceptions. The court held that no exceptions applied in this case.
First, the court held that the FAA's "savings clause" did not cover the NLRB's decision. That "savings clause" allows courts to refuse to enforce arbitration agreements on the same grounds that apply to any other contract. Second, the court held that the NLRA did not contain any congressional command overriding the FAA. The court noted as a general rule that a claim under another federal statute may be subject to arbitration unless Congress has overridden the FAA's general mandate that arbitration agreements be enforced. Finally, the Fifth Circuit also noted that three other federal courts of appeal have rejected the argument that class action waivers in employment arbitration agreements violate the NLRA and have stated that they would not defer to the NLRB's decision in D.R. Horton.
On a separate issue, the Fifth Circuit found that D.R. Horton's arbitration agreement did not make sufficiently clear that employees retained a right to file unfair labor practice charges with the NLRB. The court noted that an arbitration agreement may not prohibit employees from filing unfair labor practice charges. It further observed that even if an agreement does not expressly ban the filing of such charges, it may nevertheless violate the NLRA if "employees would reasonably construe the language" of the agreement as doing so.
This decision affects employers in two practical ways. First, employers have the authority to utilize arbitration agreements with a class action waiver. Second, every employer with an arbitration agreement should evaluate the wording to ensure compliance with the evolving law on the enforceability of such agreements.
For reasons not entirely clear, the NLRB allowed the deadline to pass and opted to not appeal the Fifth Circuit’s decision. As the issue now stands, companies will likely prevail in federal court on the issue, but will still battle the NLRB at the agency level. It is possible that the NLRB refused to appeal the case to the high court because it feared an adverse ruling. If this controversy between agency and federal court continues, the Supreme Court will likely have to review the issue. The NAM will continue to weigh in on this issue and take whatever steps appropriate to prohibit the NLRB from stepping outside its statutory authority.