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January 9, 2012

NLRB Finds That Certain Mandatory Arbitration Agreements Violate the National Labor Relations Act

On January 3, 2012, the National Labor Relations Board (“NLRB”) ruled that it is a violation of the National Labor Relations Act (“NLRA”) to require employees to sign arbitration agreements that prevent them from filing joint, class, or collective claims addressing their wages, hours or other working conditions in any forum, whether in arbitration or in court.  Specifically, in D.R. Horton, Inc. and Michael Cuda, Case No. 12-CA-25764, 357 NLRB No. 184 (Jan. 3, 2012), the NLRB examined a “Mutual Arbitration Agreement” that the employer required all employees to sign as a condition of employment and found that the agreement unlawfully restricted the employees’ right to engage in concerted activity for mutual aid and protection under Section 7 of the NLRA.  The full text of the NLRB’s Decision and Order dated January 3, 2012 is available here.

The Mutual Arbitration Agreement at issue in D.R. Horton provided, in relevant part, as follows: (1) all disputes and claims relating to an employee’s employment would be determined exclusively by final and binding arbitration; (2) by signing the agreement, the employee waived his or her right to a judicial forum and agreed to bring all claims to an arbitrator on an individual basis; and (3) prohibited the arbitrator from consolidating claims, fashioning a class or collective action, or awarding relief to a group or class of employees.

The NLRB reasoned that Section 7 of the NLRA protects employees’ right to join together to pursue workplace grievances regarding wages, hours or other terms and conditions of employment, including through litigation and arbitration.  As the Mutual Arbitration Agreement required employees, as a condition of their employment, to refrain from bringing collective or class claims in any forum (judicial or arbitral), the NLRB found that the agreement expressly barred employees from exercising their Section 7 rights.  While recognizing that the Federal Arbitration Act generally makes employment-related arbitration agreements judicially enforceable, the NLRB also found that there was no conflict between its finding and the letter of the FAA or its underlying policies.

Significantly, in its decision, the NLRB emphasized that the D.R. Horton decision only prohibits employers from compelling employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial.  Thus, according to the NLRB, employers remain free to insist that arbitral proceedings be conducted on an individual basis.

The NLRB distinguished the Supreme Court’s recent decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), which held that the FAA preempted a claim that a class-action waiver in a consumer arbitration agreement was unconscionable under state law.  The NLRB pointed out that AT&T Mobility involved a conflict between the FAA and state law, which is governed by the Supremacy Clause.  D.R. Horton, in contrast, involved a potential conflict between two federal statutes.  Moreover, only one type of contract was at stake in D.R. Horton – that between an employer and its own covered employees – whereas AT&T Mobility examined a broad rule adopted by the California Supreme Court that a class-action waiver in an arbitration clause of any contract of adhesion was unconscionable.  Any potential intrusion on the policies underlying the FAA is, in the NLRB’s view, limited.  For these reasons, the NLRB held that its finding sufficiently accommodates the policies underlying both the NLRA and the FAA.  We expect that the issue will not be fully resolved until the issue is presented to the Supreme Court.

If you should have any questions regarding the NLRB’s D.R. Horton decision and its implications or any other related issues, please contact us.