On January 3, 2012, the National Labor Relations Board (the “Board”) ruled in D.R. Horton, 37 NLRB No. 184, that certain mandatory arbitration agreements which prohibit the arbitration of class and collective actions are a per se violation of the National Labor Relations Act (NLRA). The long-awaited decision applies to all employers, union and nonunion alike.
D.R. Horton’s background facts Richard Cuda was employed as a superintendent by D.R. Horton Nationwide Homebuilder, Inc., a nonunion employer. In 2008, he sent D.R. Horton a notice of his intent to arbitrate, on behalf of himself and all similarly-situated superintendents, the issue of whether D.R. Horton misclassified its superintendents as exempt employees under the Fair Labor Standards Act (and, consequently, whether superintendents were owed overtime pay). When D.R. Horton informed Cuda that he could not arbitrate these claims as a class, he filed an unfair labor practice charge with the Board relating to the arbitration agreement’s prohibition of collective and class actions.
Like many employers today, D.R. Horton mandated that its employees sign arbitration agreements as a condition of employment. Specifically, the mandatory arbitration agreements required that “all disputes and claims relating to the employee’s employment” be determined by final and binding arbitration. The agreement prohibited the arbitrator from consolidating claims, forming a class or collective action or furnishing relief to a group or class of employees. In short, D.R. Horton’s arbitration agreement’s limited scope effectively ended any opportunity for employees to engage in a collective or class action relating to their employment.
The Board’s decision
The NLRB’s examination of the D.R. Horton arbitration agreement centered on Section 7 of the NLRA, which allows employees to engage in certain concerted, collective activities. Specifically, employees who fall within the NLRA have the right to engage in “concerted activities for the purpose of mutual aid or protection.”
In holding that D.R. Horton’s arbitration agreement was a per se violation of the NLRA, the Board emphasized the right to engage in concerted activities. “Clearly, an individual who files a class or collective action regarding wages, hours, or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected” by the NLRA. Because the right to collective action is protected by Section 7, the Board found that the agreement unlawfully barred employees from engaging in protected “concerted activity.” As a result, employers cannot require, as D.R. Horton did, that employees waive the right to collectively pursue legal claims action in any forum, whether in arbitration or court.
D.R. Horton’s impact on employers
Importantly, this decision applies to all employers covered by the NLRA, regardless of whether the employer is union or nonunion. This is because the NLRA applies to all employers with more than $50,000 of purchases or sales of goods in interstate commerce, whether or not any of the employees of the employer are represented by a union. As a result, the NLRA is designed to apply to the vast majority of employers in the United States.
As a result, any employer that has, or is considering implementing arbitration agreements should now consider that a condition of an arbitration agreement is employees must be able to arbitrate or litigate collective or class actions. Failing to allow employees to do so is a violation of the NLRA in the Board’s view. If, however, class or collective actions are exempt from the purview of an employer’s arbitration agreement, such agreements are not impacted by D.R. Horton because they still afford employees the right to engage in collective or class actions.
Because D.R. Horton is expected to appeal this decision to the 11th or D.C. Circuit Court of Appeals, it is unclear if or for how long this decision will stand. While an appeal is pending, however, employers must comply with D.R. Horton or risk facing unfair labor practice charges. As a result, employers are encouraged to review arbitration agreements and update such agreements, if necessary, to ensure employees have the ability to pursue collective or class action.
If you would like to discuss the effect of the D.R. Horton decision on your business, how to review or modify your arbitration agreements, and/or implementing arbitration agreements in your workplace, please contact:
Victor T. Geraci216.430.2026
Brendan J. Fitzgerald216.430.2009
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