By Ben Shepler

The Fifth Circuit Court of Appeals recently provided employers with some welcome holiday cheer. In a 2-1 decision, the Court rejected an NLRB ruling that called into question the wide-spread practice of having employees sign arbitration agreements that bar class or collective actions. While the Fifth Circuit’s ruling largely favors employers, the Court did agree with the NLRB that the specific arbitration agreement at issue improperly restricted the ability of an employee to file an unfair labor practice charge with the NLRB. 

In D.R. Horton, Inc. v. NLRB (pdf), the Fifth Circuit considered the NLRB’s January 2012 decision which held that homebuilder D.R. Horton, Inc. 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. Specifically, the NLRB held that the arbitration agreement improperly prohibited employees from participating in protected concerted activity in the form of class or collective actions. The NLRB also held that the arbitration agreement violated the NLRA because it appeared to prohibit employees from filing unfair labor practice charges with the NLRB.

To support its holding on the protected concerted activity issue, the NLRB sought to sidestep an apparent conflict between its interpretation of the NLRA and the Federal Arbitration Act, which requires that arbitration agreements be enforced according to their terms. However, the Fifth Circuit was not persuaded by the NLRB’s reasoning. Applying the analysis outlined by the United States Supreme Court in AT&T Mobility v. Concepcion (pdf), the Fifth Circuit found that the NLRB’s interpretation of the NLRA, while facially neutral towards arbitration in theory, served in practice to improperly discourage arbitration in violation of the Federal Arbitration Act. Consistent with the findings of other courts that have considered this issue, the Fifth Circuit further held that nothing in the text or legislative history of the NLRA suggests an intent to trump the Federal Arbitration Act.

Despite largely rejecting the NLRB’s analysis, the Fifth Circuit did agree that D.R. Horton’s arbitration policy improperly gave the impression that employees were prohibited from filing unfair labor practice charges with the NLRB. Although D.R. Horton’s arbitration policy did not explicitly prohibit the filing of unfair labor practice charges, it contained a broad waiver of the right to file civil proceedings in addition to lawsuits. According to the Fifth Circuit, this broad waiver could reasonably create the impression that it applied to administrative charges before the NLRB.

At this time, the NLRB has not indicated whether it will appeal the decision. While we await word, labor professionals should review all individual, non-collectively bargained arbitration policies. In particular, labor professionals should:

  • Determine whether to include a class or collective action waiver in their arbitration agreements. Although the NLRB may not give up without a fight, the clear weight of legal authority supports enforcement of class or collective action waivers in arbitration agreements.
  • Make certain that their arbitration policies allow employees to file unfair labor practice charges with the NLRB. The NLRA prohibits arbitration policies that would reasonably lead employees to believe that they are prohibited from filing unfair labor practice charges with the NLRB.