NLRB Issues Ruling on Employment Arbitration Agreements

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In DR Horton, a decision issued on January 3 and applicable to most private sector employers, whether unionized or not, the NLRB held that federal labor law prevents you from requiring your employees to agree to broad waivers that would deny their right to pursue employment-related class actions both in court and in arbitration, leaving them no forum for pursuing class or collective claims. As a result, an important tool for managing the risk of employment-related litigation has been taken away (for now).

The facts of the case are straightforward. DR Horton, like many employers, required its employees to sign an arbitration agreement as a condition of employment. The agreement required employees to arbitrate all claims arising out of their employment, and precluded arbitrators from issuing class or group relief. As a result, employees were prevented from bringing class or collective actions in any forum. Relying on this agreement, DR Horton refused to arbitrate a class action alleging that it had misclassified certain employees as exempt from the protections of the Fair Labor Standards Act.

Not so fast, according to the NLRB. Tracing federal labor law back to its origins, the Board found that the filing of a class action "to redress workplace wrongs or improve working conditions" is activity at "the core" of what Congress intended to protect when it enacted the National Labor Relations Act in 1935. This intent, the Board reasoned, is reflected in Section 7 of the Act, which gives employees the right to engage in "concerted activities" for the purposes of "mutual aid or protection." Relying on Section 7, the Board found that Employers cannot compel their employees to entirely waive the right to bring class or collective actions.

The NLRB's ruling in DR Horton clashes with the U.S. Supreme Court's recent decision in AT&T v. Concepcion, which held that arbitration clauses that waive the right to bring class claims entirely (in the commercial contract context) may be lawful and enforceable. But unless and until the courts intervene, requiring your employees to completely waive the right to bring class or collective actions - a common feature of arbitration agreements - is no longer permissible under federal labor law.

If you have any questions about the content of this alert, please contact Amy Joseph Pedersen or your Stoel Rives attorney.

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Amy Joseph Pedersen
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