NLRB Rules against Mandatory Arbitration Agreements that Prohibit Class Actions

D.R. Horton, Inc., 357 N.L.R.B. No. 184 (January 3, 2012)

Earlier this month, The National Labor Relations Board (the “Board”) ruled that it is a violation of the National Labor Relations Act (“NLRA”) to require employees to sign arbitration agreements that prevent them from participating in class action law suits to pursue employment-related legal claims.

In D.R. Horton, Inc., 357 N.L.R.B. No. 184 (January 3, 2012), the employer, (“Horton”), a nationwide home builder, required each new and current employee to execute a “Mutual Arbitration Agreement” (“MAA”) as a condition of employment, whereby the employees agreed that (1) all employment-related disputes must be resolved through individual arbitration, and (2) their right to a judicial forum is waived. In other words, the employees were required to agree, as a condition of employment, that they will not pursue class or collective litigation of claims in any forum, arbitral, or judicial. In 2008, Michael Cuda, a superintendent for the employer, filed a collective action against Horton for allegedly misclassifying him and other superintendents as exempt from the overtime protections of the Fair Labor Standards Act (“FLSA”). Horton’s attorneys then informed Cuda that the arbitration agreement barred Cuda from arbitrating his FLSA claims as a collective action, and Cuda subsequently filed this charge.

The NLRB began its analysis by tracing federal labor law back to its origin, specifically Section 7 of the NLRA. In doing so, the Board found that the ability to file a class action “to redress workplace wrongs or improve working conditions” is “at the core of what Congress intended to protect by adopting the broad language of Section 7 . . .” and is “central to the Act’s purposes.” The Board then reaffirmed the long-standing principle that Section 7 protects employees’ rights to engage in “concerted activities” for the purposes of “mutual aid or protection,” which allows the employees to collaborate or join together to improve working conditions through litigation or other means.

Relying on the Section 7 analysis, the Board found that employers cannot require their employees, as a condition of employment, to completely waive the right to bring class or collective actions. Therefore, the arbitration agreement that Horton made its employees sign interfered with Cuda’s Section 7 right to bring a class or collective action, and thus, is invalid because an “individual who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7.”

This ruling conflicts with a ruling made by the U.S. Supreme Court last year in ATandT Mobility v.Concepcion, which held that employers could compel a group of individuals to waive their right to file a class action lawsuit and instead arbitrate their collective dispute.