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In a decision seemingly at odds with the recent U.S. Supreme Court rulings in Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010) and AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), a two-member majority of the NLRB found that an arbitration agreement containing a class actions waiver violated the employees' rights to “engage in concerted action for mutual aid or protection, notwithstanding the Federal Arbitration Act (FAA)” and thus was unenforceable. D. R. Horton, Inc., 357 NLRB No 184 (Jan. 3, 2012).
Through D.R. Horton’s Mutual Arbitration Agreement (MAA) employees waived their right to a judicial forum and agreed to bring all claims to an arbitrator on an individual basis. The MAA expressly prohibited the arbitrator from consolidating claims, fashioning a class or collective action, or awarding relief to a group or class of employees.
Holding that the MAA violated the employees’ rights under the NLRA, the two remaining Democrats on the Board overruled the Administrative Law Judge, who had dismissed the allegation that the class-action waiver violated Section 8(a)(1) of the Act. The ALJ had held that there was no NLRB precedent prohibiting arbitration agreements from including class-action waivers and that Supreme Court and circuit court precedents have long favored arbitration as a method for resolving employment disputes.
Overruling this conclusion, the Board majority ruled that none of the previous cases had examined the alleged interference with employee rights under the NLRA. The Board further ruled that its decision to invalidate the MAA was not in conflict with the FAA, but rather was consistent with upholding Section 2 of the FAA, which "provides that arbitration agreements may be invalidated in whole or in part upon any 'grounds as exist at law or in equity for the revocation of any contract.'" The Board also explained that its decision did not prohibit arbitration agreements from containing class-action waivers per se, as it left room for agreements that permitted employees to address their concerns collectively in another judicial forum (i.e. court). The sole remaining Republican on the Board, Member Hayes, dissented.
While the Board majority attempted to minimize the implications of its ruling – stating that “only a small percentage of arbitration agreements are potentially implicated by the holding in this case,” – it provided no facts to support this contention.
The ruling runs counter to the 2010 decision of the U.S. Supreme Court in Stolt-Nielsen which held that an arbitration agreement that was silent on the point could not be read to include class claims. Further, in 2011 the Supreme Court in Concepcion held that arbitration clauses that contained express class action waivers had to be enforced under the FAA – a ruling widely believed to have provided the means to close the door on employment class actions.
Though the decision is likely to be appealed, if this new decision is upheld, nearly all employment arbitration agreements containing a class-action waiver would be unlawful under federal law.
© 2012 BARNES & THORNBURG LLP
