NLRB Invalidates Arbitration Agreement Prohibiting Class/Collective Actions

By Nelson Cary and Ben Shepler

New year, same controversial NLRB. In a decision that seems destined for appeal, the NLRB recently ruled that employers may not utilize individual arbitration agreements that prevent employees from joining in employment-related class or collective actions. The NLRB’s decision is notable because, among other things, it arguably conflicts with both the Federal Arbitration Act (FAA) and with a recent pro-arbitration decision issued by the United States Supreme Court.

In D.R. Horton, Inc., 357 N.L.R.B. No. 184 (Jan. 3, 2012) (pdf), the NLRB held that homebuilder D.R. Horton committed an unfair labor practice by requiring employees to sign a mandatory arbitration agreement that (1) forced employees to submit employment-related disputes to binding arbitration and (2) prohibited the arbitrator from considering these disputes as part of a class or collective action. This prohibition came under fire in 2008, when a former D.R. Horton employee attempted to initiate a collective action arbitration alleging violations of the Fair Labor Standards Act. 

In a 2-0 decision, with Member Hayes (R) having recused himself, the NLRB held that participation in class or collective actions is protected concerted activity under the NLRA. Accordingly, the arbitration agreement violated the NLRA because it prohibited employees from participating in protected concerted activity. The NLRB further held that the arbitration agreement violated the NLRA because the agreement appeared to prohibit employees from filing unfair labor practice charges with the NLRB.  

As part of its decision, the NLRB also considered an important issue of first impression:  whether the prohibition on class/collective action waivers in arbitration agreements the NLRB found in the NLRA put the NLRA in conflict with the pro-arbitration FAA. The NLRB determined that no conflict existed, noting that the NLRA would also prohibit other contracts that barred employment class or collective actions, regardless of whether the contract involved arbitration. 

Finally, the NLRB addressed concerns that its decision conflicted with a recent pro-arbitration opinion from the United States Supreme Court. In AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 1753 (2011) (pdf), the Supreme Court held that the FAA preempted a California law that prohibited class action waivers in consumer arbitration contracts. The NLRB attempted to distinguish AT&T Mobility by pointing out that the case involved a conflict between the FAA and state law, whereas the arbitration agreement at issue in D.R. Horton involved a potential conflict between two federal statutes, the FAA and the NLRA. 

The strength of the NLRB’s reasoning will almost certainly be tested on appeal. In the interim, labor professionals should review all individual, non-collectively bargained arbitration policies. In particular, labor professionals should consider:

  • Allowing employees to participate in employment-related class or collective actions. According to the NLRB, an arbitration agreement can prohibit class or collective arbitration so long as employees were allowed to bring these claims in court. The NLRB chose not to address the opposite scenario:  whether an arbitration agreement could allow class or collective arbitration claims, but prohibit those claims in court. 
  • Allowing employees to file unfair labor practice charges with the NLRB. Excluding such claims from the scope of an arbitration agreement improves the likelihood that the arbitration agreement will not run afoul of the NLRA. 
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