D.R. Horton Reversed by 5th Circuit

On December 3, 2013, the Fifth Circuit Court of Appeals reversed the decision of the National Labor Relations Board (the “Board” or “NLRB”) in D.R. Horton, Inc. and held that D.R. Horton’s arbitration agreement prohibiting class or collective action claims did not violate the National Labor Relations Act (“NLRA”). In so holding, the court found that the Board did not give proper weight to the Federal Arbitration Act (“FAA”).

The Board’s January 3, 2012 decision in D.R. Horton held that it is unlawful for an employer to require that employees, as a condition of employment, waive their right to bring class or collective claims in any arbitral or judicial forum. Specifically, the Administrative Law Judge (“ALJ”) found that requiring an employee to agree not to bring an FLSA collective action constitutes an unfair labor practice in violation of section 7 of the NLRA – denying employees the right to engage in concerted activity. Moreover, the ALJ found that the general language of the arbitration agreement violated section 8(a)(1) of the NLRA because it led employees to believe they are prohibited from filing unfair labor practice charges before the Board. D.R. Horton filed a timely petition to the Fifth Circuit to review this decision.

In reversing the Board’s decision that policy considerations of the FAA would yield to those of the NLRA in light of a conflict, the Fifth Circuit first analyzed whether the arbitration agreement at issue would be invalidated under the FAA’s “savings clause,” which preserves general legal and equitable defenses to invalidate a contract containing an arbitration provision. Consistent with the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, the court found that the “savings clause” did not apply to invalidate contracts that may conflict with the NLRA. The “savings clause” is not meant to be an obstacle to the FAA’s objective of promoting arbitration and therefore, as the Board’s decision, though facially neutral, prohibited class action arbitration in violation of the FAA, it was overturned. Second, the court found that the arbitration agreement must be enforced as written ─ allowing the class action waiver ─ because neither the text of the NLRA nor its legislative history supports a congressional command to override policy considerations of the FAA. As such, the FAA requirement that arbitration agreements must be enforced according to their terms prevails and the class and collective action waiver is enforceable.

The court, however, also held that broad and ambiguous waivers of a judicial forum can violate section 8(a)(1) of the NLRA if employees are led to believe that they must arbitrate unfair labor practice charges and are foreclosed from administrative proceedings before the Board. As to this aspect of the case, the court rejected D.R. Horton’s argument that its arbitration provision, as drafted, applied only to “court actions” and not to administrative proceedings. Thus the court upheld the Board’s directive to D.R. Horton to revise the provision to make clear to its employees they have the right to pursue claims of unfair labor practice charges with the Board.

The decision also addresses some preliminary issues regarding the composition of the Board when the case was decided. Specifically, the court analyzed J.D. Horton’s arguments concerning the validity of a recess appointment of a Board member, the expiration of a Board member’s appointment, and whether the Board had authority to act as a three-member panel. The court dealt with these issues in turn and concluded that none of them warranted non-enforcement of the Board’s decision.

The Fifth Circuit’s decision upholding the class action waiver provision is in accord with recent class action waiver cases supporting a broad interpretation of the FAA. In American Express Company v. Italian Colors Restaurant the Supreme Court held that the FAA allows contractual class action arbitration waivers in antitrust lawsuits. Similarly, the Second Circuit in Sutherland v. Ernst & Young LLP held that an employee can be required to sign an arbitration agreement waiving the right to bring a collective or class action in Fair Labor Standard Act (“FLSA”) suits. And, most recently, on November 8, 2013, in Chesapeake Energy Corporation, an NLRB panel stated that the Board’s position in D.R. Horton that class and collective action waivers in arbitration agreements violate the NLRA “cannot be sustained.” Thus, the Fifth Circuit joins the Second, Eighth, and Ninth Circuits in following the trend that arbitration agreements containing class waivers are enforceable. Employers should keep in mind, however, that the enforceability of class action waivers is still decided on a case-by-case basis in the remaining jurisdictions.

For questions regarding the court’s ruling and class action waivers generally, please feel free to contact an attorney in the Gibbons Employment & Labor Department.

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