Employer’s Mandatory Arbitration Clause Waiving Employee’s Right to Sue in Court Upheld
In a significant decision, the U.S. Court of Appeals for the Fifth Circuit, in New Orleans, has upheld an employer’s arbitration agreement requiring the resolution of workplace controversies by arbitration and banning class actions in any forum, overturning the National Labor Relations Board’s controversial 2012 ruling. D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013). The Fifth Circuit has given the Board until March 20, 2014, to file a petition for re-hearing of the 2-1 panel decision or seek U.S. Supreme Court directly.
The “Mutual Arbitration Agreement” in this case required employees (who were not represented by a union) to agree to waive their right to resort to a judicial forum and to resolve employment-related disputes only through individual arbitration. It further limited the arbitrator’s authority to decide only indi- vidual claims, preventing the arbitrator from “fashion[ing] a proceeding as a class or collective action or award[ing] relief to a group of employees in one arbitration proceeding.” In other words, employees could not pursue class or collective litigation of covered claims in any forum. The Agreement also did not identify unfair labor practice (ULP) complaints as an exception to arbitration.
The Board ruled the Agreement violated the NLRA because it required workers to waive their right to join together to challenge the employer’s decisions. It concluded that the NLRA confers on employees the right to pursue discrimination, wage and hour and other workplace-related claims in a joint, class, or collective fashion as “protected concerted activity.” The Board also concluded the Agreement violated the NLRA because its language barring employees from starting “a lawsuit or other civil proceedings” could lead employees reasonably to believe they also were prohibited from filing ULP charges with the Board.
The Court rejected the Board’s conclusion that invalidating class action waivers would not conflict with the Federal Arbitration Act’s requirement that arbitration agreements be enforced “according to their terms,” unless Congress specified otherwise. It found the Board failed to give “proper weight” to the FAA. The Fifth Circuit, however, agreed with the Board that the Agreement was impermissibly broad because employees could reasonably believe it barred them from filing ULP charges.
It thus held the employer must clarify the Agreement so it does not appear to prohibit such a right.
While it is not yet certain if the Fifth Circuit’s panel decision will stand, the number of other courts rejecting the Board’s position continues to increase (e.g., Richards v. Ernst & Young, LLP, 2013 U.S. App. LEXIS 24562 (9th Cir. Dec. 9, 2013); Zabelny v. CashCall, Inc., 2014 U.S. Dist. LEXIS 2626 (D. Nev. Jan. 7, 2014); Sylvester v. Wintrust Fin. Corp., 2013 U.S. Dist. LEXIS 140381 (N.D. Ill. Sept. 30, 2013)). Employers should review their arbitration agreements with counsel to ensure they clearly do not impinge on an employee’s right to file ULP charges, make any necessary changes in light of this decision, and continue to monitor the D.R. Horton litigation.