Fifth Circuit Rejects Seminal NLRB Ruling that Class/Collective Action Waiver in Arbitration Agreement Violates the National Labor Relations Act

December.04.2013

​Recently, the issue of class/collective action waivers in mandatory arbitration agreements has been a hot one. Including in its seminal D.R. Horton decision, the National Labor Relations Board (NLRB) has repeatedly taken the position that such waivers violate employees' rights under Section 7 of the National Labor Relations Act (NLRA). The Board has asserted that requiring employees to waive their ability to bring a class or collective action against their employer effectively (and impermissibly) circumvents employees' right under the NLRA to engage in certain concerted activity. The federal courts—including now the Fifth Circuit—which have examined this issue have disagreed and held that employees may, by entering into mandatory arbitration agreements containing such clauses, waive the ability to bring a class or collective action.

In D.R. Horton, the Fifth Circuit has now squarely rejected the NLRB's administrative decision in D.R. Horton that class action waivers violate the NLRA, holding that the right of an employee to bring class or collective action is procedural, rather than substantive, and that the exception to enforcing the arbitration agreement set forth in the Federal Arbitration Act's (FAA) "saving clause" is inapplicable. Further, the Fifth Circuit determined that there is no "congressional command" contained in the NLRA or its legislative history that mandates overriding the FAA's requirement that arbitration agreements be enforced. In finding the arbitration agreement's class action waiver enforceable, the Fifth Circuit in D.R. Horton joins several other circuits. See Richards v. Ernst & Young, LLP, No. 11-17530, 2013 U.S. App. LEXIS 17488 (9th Cir. Aug. 21, 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290 (9th Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013).

In a matter of lesser significance, however, the court sided with the Board, holding that the arbitration agreement's language that he or she "knowingly waives the right to file a lawsuit or other civil proceeding…" could be misconstrued by employees as waiving their administrative rights under the NLRA to bring an unfair labor practice charge. Accordingly, the court found reasonable the Board's order that D.R. Horton modify the waiver language.

What are the implications of this decision for employers? First and foremost, with the express rejection of the Board's seminal decision on this topic, employers can be more, but still not completely, confident that class or collective action waivers in arbitration agreements will be found permissible by federal courts. It is likely that the NLRB's position will eventually make its way to the U.S. Supreme Court. Second, employers should review the language in their mandatory arbitration agreements to ensure that the agreements clearly convey that a class or collective action waiver does not preclude employees from filing a charge with the NLRB. Indeed, including in arbitration agreements a statement to this effect is advisable.