Volume 10, Issue 3 - March 2012

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NLRB Decision Bars Mandatory Waiver of Class Action in Employment Arbitration Agreements

The NLRB’s decision in D.R. Horton, Inc. and Michael Cuda, 12-CA-25764 January 3, 2012, held that that employers may not deprive either unionized or non-unionized employees of the opportunity to bring class actions against their employer in any forum, arbitral or judicial.  This decision overturned an Administrative Law Judge’s (ALJ) January 3, 2011, determination that a mutual arbitration agreement requiring the employee to agree, as a term of employment, to submit all employment disputes to individual arbitration and allowing the arbitrator no authority to consolidate claims or fashion a proceeding as a class or collective action did not constitute an unlawful restraint on employees’ collective bargaining rights.  D.R. Horton, Inc., NLRB Div. of Judges, 12-CA-25764.

This decision is controversial due to the Supreme Court’s recent ruling in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011). In Concepcion, the Court, in a 5-4 decision, prohibited class proceedings by enforcing an arbitration provision contained in AT&T’s customer cellular telephone contract that provided for mandatory arbitration on an individual basis and was silent as to class actions or arbitrations. Id. The decision in Concepcion was interpreted to allow employers to use class arbitration waivers to protect against class and collective actions. Id. However, there is a significant possibility that if the D.H. Horton decision survives challenges, it will have a significant impact on employee’s abilities to bring class actions.

In D. R. Horton, the NLRB recognized that a mandatory agreement unlawfully restricts employees’ rights to engage in concerted action for mutual aid or protection under Section 7 of the NLRA. The Board enjoined the employer D. R. Horton from using its mandatory arbitration clause to require employees to bring claims individually. The rationale is that the substantive right to engage in “concerted activity” includes bringing litigation or arbitration claims jointly, whether as a collective or in a class action, as well as allowing unionized and non-unionized employees to join together in strikes or mutual aid societies.

The Board rejected the argument that this decision created a conflict between the Federal Arbitration Act (FFA), which generally makes employment-related arbitration agreements judicially enforceable and the NLRA’s policy.  The two statutes are reconcilable because the NLRA only prohibits employment arbitral class action waivers.

The Board supported its decision by pointing out several factors specific to this case. First, the Board determined that the arbitration provisions would deny claimants their substantive right to engage in concerted activity, and the Supreme Court has made clear that arbitration clauses cannot deprive persons of the substantive rights. See Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 636-37 (1985). Furthermore, since a contract prohibiting class actions waivers in litigation would be invalid, voiding the arbitral class action waiver is consistent and does not single out arbitration. This arbitration clause was imposed on all employees as a condition of employment so it cannot be characterized as a voluntary “agreement.” This decision will not force employers into an arbitral class action, because employers could instead require employees to arbitrate individual claims while allowing them to litigate collective or class claims.  This decision can be distinguished from Concepcion and the Supreme Court’s desire to keep arbitration simple, since most employment class actions are smaller and less unwieldy than consumer class actions.

While it is likely this decision will be appealed, this decision could have a major impact on the ability of employees to engage in class actions. The NLRB’s reasoning that arbitral class action waivers prevent people from vindicating their rights may provide a baseline to narrow or distinguish employment cases from the consumer-based decision in Concepcion. However, a court challenge would involve the tension of the Supreme Court precedent favoring mandatory arbitration, which denies the right to collective action versus the Chevron deference required of the NLRB’s interpretation that labor laws guarantee a right to collective action.

*Summary by Whitney Siehl, Moritz Class of 2013

Posted in: Volume 10, Issue 3

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