Employers Cannot Put Class Action Waivers in Employment Agreements

Employment arbitration agreements that bar employees from filing class actions against their employers, and instead require cases to be brought separately, violate federal labor law, the National Labor Relations Board (“NLRB”) held this month.  The decision is D.R. Horton, Inc. and Michael Cuda. 357 NLRB No. 184. In that case, Michael Cuda worked for D.R. Horton, Inc., a new home builder, as a supervisor for ten months. Two years after resigning, he filed an unfair labor practice charge alleging that D.R. Horton’s Mutual Arbitration Agreement unlawfully barred him from filing a collective claim on behalf of a class of employees.

The NLRB agreed, finding a “substantive right to engage in specified forms of associational activity” in the statutory language of Section 7 of the National Labor Relations Act (“NLRA”), which grants employees the right “to engage in…concerted activities for the purposes of collective bargaining or other mutual aid or protection…” 29 U.S.C. §157. D.R. Horton’s chief defense was that the Federal Arbitration Act allows for the enforcement of arbitration agreements “so long as the litigant can effectively vindicate his or her statutory rights through arbitration.” Gilmer v. Interstate/Johnson Lane Corp., 500U.S. 20, 28 (1991).  In rejecting this argument and finding that the NLRA bars this common term of employment arbitration clauses, the NLRB effectively held that the NLRA trumped the FAA, and extended its own reach into territory typically governed by other federal law.

The Board held that the NRLA protected employees who signed these arbitration terms from losing their right to bring class actions, finding that the NRLA guaranteed employees access to these collective proceedings. Since this right was waived by D.R. Horton’s arbitration agreement, the NLRB found that the agreement was unlawful under the NLRA.

The Board nonetheless recognized some limits to its power over arbitration clauses, reasoning that, “an agreement requiring arbitration of any individual employment-related claims, but not precluding a judicial forum for class or collective claims, would not violate the NLRA, because it would not bar concerted activity.”

Amici curiae in this matter included the AFL-CIO, the United States Chamber of Commerce, the U.S. Secretary of Labor and the Equal Employment Opportunity Commission.