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Employer Law Report

Fifth Circuit Court of Appeals Knocks Down NLRB Decision: And, in Doing So, Supports Employer Effort to Avoid Class Action Claims

Posted in Employment Class & Collective Actions, Labor Relations

One of the most significant risks to business in recent years has been the proliferation of class action employment-related lawsuits. Class action claims have been especially popular with plaintiff’s lawyers pursuing federal Fair Labor Standards Act wage claims. A class action lawsuit can mean huge costs for defense and damages. Some employers have attempted to manage the risk by having employees sign agreements requiring that they pursue employment law claims against the company in arbitration, rather than in court. Sometimes employers include in the arbitration agreement a specific waiver of the right to pursue class action claims in court or in arbitration.

In 2012, the National Labor Relations Board (NLRB) issued a decision against home builder D.R. Horton, Inc., saying that the company’s mandatory arbitration agreement violated the National Labor Relations Act (NLRA). Section 7 of the NLRA protects the rights of all employees, union and non-union, to act together “for mutual aid and protection,” also called “concerted activity.” In the D.R. Horton case, the NLRB decided that the company’s arbitration agreement, which banned employees from pursuing class claims, effectively kept them from acting together for mutual aid and protection and therefore violated Section 7 of the NLRA.

The company appealed the decision to the federal Fifth Circuit Court of Appeals. The Court faced a difficult decision. On the one hand, the NLRB is the federal agency authorized to interpret the NLRA. It’s interpretations of that law are supposed to be given great deference by the courts. On the other hand, there is a separate federal law, the Federal Arbitration Act (FAA) which supports the resort to arbitration as an alternative to lawsuits and supports the enforcement of legitimate arbitration agreements.

In a decision issued on December 4, 2013, the Court overturned the NLRB’s ruling. The Court found that the protections in the NLRA for concerted activity do not specifically assure employees the right to pursue class action litigation. In the absence of that specific protection in the NLRA, the court gave greater weight to the expression in the FAA of Congressional support for arbitration and enforcement of arbitration agreements. The Company agreement banning class claims and requiring employees pursue only individual claims, and those in arbitration, was upheld.

The Court did agree with the NLRB decision on one point. The Court agreed that the D.R. Horton policy was written too broadly. The policy said that employees could file no “lawsuit or other civil proceedings” against the company and, instead, had to pursue all claims to arbitration. The NLRB said an employee might reasonably interpret that to prohibit filing unfair labor practice charges with the NLRB. The Court agreed and required that D.R. Horton revise its policy so that it is more clear that employees are not waiving their right to file unfair labor practice charges.

The Court’s decision is a significant win for employers because at least in states in the Fifth Circuit (Texas, Louisiana and Mississippi), it keeps the door open for creative and effective efforts to direct employment disputes to arbitration, rather than the courtroom, and to preclude resort to class action lawsuits. But, the overall question of whether an agreement compelling arbitration instead of lawsuits is best for any one business requires careful thought. Arbitration may be a less-costly and time-consuming forum for fighting employment law disputes. But, on the other side of that equation, arbitration provides a less costly and more accessible forum for terminated employees to pursue claims against their former employers. So there is a risk that opening the door to arbitration could actually increase the number of employment-law challenges. Also, binding arbitration agreements do not close the door on all other kinds of employment claims, and there are many potential pitfalls when trying to draft arbitration agreements to assure they are most effective and enforceable.

Because the Fifth Circuit decision in D.R. Horton is not binding on the NLRB except in the states within that Circuit, NLRB judges in other states may continue to find that waivers of class claims violate the NLRA. We expect to see additional litigation on the question.