Update on D.R. Horton v. NLRB: Class Waiver in Employment Contract Does Not Violate NLRA

In a long-anticipated 2-1 decision, the U.S. Court of Appeals for the Fifth Circuit has held that a collective or class action waiver in an employment contract’s arbitration clause does not violate an employee’s “right of access” under the National Labor Relations Act (NLRA). In D.R. Horton, Inc. v. NLRB, Case No. 12-60031, 2013 U.S. App. LEXIS 24073 (5th Cir. Dec. 3, 2013, revised Dec. 4, 2013) (available at 1.usa.gov/1bmmXD1), the Fifth Circuit disagreed in part with the National Labor Relations Board (NLRB or Board), which had previously ruled that D.R. Horton, Inc., a national home builder, violated the NLRA by requiring employees to sign an arbitration agreement prohibiting class action. The court upheld, however, the NLRB’s finding that the agreement violated the NLRA because it could reasonably be read to prohibit the filing of a claim with the NLRB. CPR has reported on the NLRB decision in 30 Alternatives 17, 26-27 (Feb. 2012) and online at bit.ly/1gkpeDe, and on the Fifth Circuit briefing and argument in 30 Alternatives 201, 210-15 (Dec. 2012), 31 Alternatives 1, 9-14 (Jan. 2013), 31 Alternatives 17, 18, 29-32 (Feb. 2013), and 31 Alternatives 33, 44-46 (Mar. 2013). The Fifth Circuit characterized the issue before it as narrow: whether “the rights of collective action embodied in [the NLRA] make it distinguishable from cases which hold that arbitration must be individual arbitration,” and determined that the answer was “no.”

In reviewing the NLRB decision, the Fifth Circuit asserted that the use of class action procedures was not in itself a substantive right. Then, the court recalled “the requirement under the FAA that arbitration agreements must be enforced according to their terms,” and considered its two exceptions: (1) if a ground applies that would invalidate a contract under the FAA’s “saving clause” at 9 U.S.C. § 2 (available at 1.usa.gov/18j1SLo), and (2) if another statute states a contrary congressional command. The court concluded that under AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) (available at 1.usa.gov/1963l6p), the Board’s ruling protecting class or collective action and prohibiting class-action waivers did not fit within the FAA’s saving clause. The court then concluded that the NLRA did not contain a congressional command to override the FAA. There was no contrary “express command” in the NLRA’s general thrust or legislative history, and no inferred command “from an inherent conflict between the FAA and the NLRA’s purpose.” The type of collective action provided for and protected by the NLRA was aimed at equalizing bargaining power between employees and employers, which is insufficient to override the FAA. The court did, however, uphold the Board’s finding that the arbitration clause violated NLRA section 8(a)(1), finding that “an employee could reasonably read the agreement as also precluding unfair labor practice charges.”

Judge James Earl Graves concurred in part and dissented in part. Judge Graves would have denied Horton’s petition for review and affirmed the Board’s decision “in toto.” He agreed that the arbitration provision interfered with the “exercise of employees’ substantive rights” under the NLRA, and that holding that the provision violated the NLRA was consistent with the FAA.

Because there are similar cases in other jurisdictions, and implications for other federal agencies, including the US Securities and Exchange Commission (SEC), this case is considered likely to come before the US Supreme Court.

Cynthia Galvez, CPR Legal Intern