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Fifth Circuit Upholds The Validity Of Class-Action Waivers In Arbitration Agreements

Earlier this week, on December 3, 2013, the Fifth Circuit Court of Appeals held that arbitration agreements lawfully can contain class-action waivers.  In its ruling in D.R. Horton, Inc. v. National Labor Relations Board, the Fifth Circuit overturned a National Labor Relations Board (the “Board”) administrative decision, finding that D.R. Horton, Inc. did not violate the National Labor Relations Act (NLRA) by requiring its employees to sign an arbitration agreement in which they waived their right to pursue employment claims in collective or class actions.  Specifically, the Court concluded that the Board failed to “give proper weight to the Federal Arbitration Act [FAA],” which requires that arbitration agreements be enforced as written, subject to two exceptions, both inapplicable here.  However, the Court upheld the Board’s determination that the arbitration agreement could be reasonably construed to prohibit employees from filing an unfair labor practice charge, in violation of Section 8(a)(1) of the NLRA.

The arbitration agreement at issue prohibited D.R. Horton’s employees from pursing collective or class claims in both arbitral or judicial forums, relegating the resolution of employment-related disputes to individual arbitration.  After D.R. Horton rejected an employee’s attempt to arbitrate a claim on a class-wide basis, the employee filed an unfair labor practice charge with the Board, alleging that the arbitration agreement’s class-action wavier violated the NLRA.  Following a decision by an administrative law judge, the Board found that D.R. Horton’s arbitration agreement violated the NLRA.  Specifically, the Board held that the class-action wavier infringed on the substantive rights of employees to join together and pursue workplace grievances.

The Fifth Circuit dismissed the Board’s position as inconsistent with the FAA.  First, the Court rejected the Board’s use of the FAA’s savings clause, which permits the invalidation of an arbitration agreement where “such grounds exist at law or equity for the revocation of any contract.”  The Board previously determined that the class-action wavier violated the NLRA, and therefore provided grounds to invalidate the arbitration agreement.  However the Fifth Circuit noted that this specific position already had been rejected by the United States Supreme Court inAT&T Mobility v. Concepcion, which held that conditioning the enforcement of arbitration agreements on the availability of class actions “interferes with the fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”

Second, the Court found that the NLRA did not override the FAA via congressional command.  Looking to the text of the NLRA, the Court noted that the NLRA does not contain any explicit mention of arbitration or the FAA, nor does it explicitly provide for collective or class actions.  Rather, the general language of the NLRA, which protects employees’ rights to engage in concerted activities, is insufficient to demonstrate a congressional command that the NLRA should override the FAA.  Similarly, the Court found no evidence in the legislative history of the NLRA to support a congressional command to override the FAA.

Third, the Court found that the NLRA has “worked in tandem with arbitration agreements in the past,” and thus there is no inherent conflict between the purposes underlying the FAA and NLRA.  Indeed, courts have recognized that the NLRA permits, and in some circumstances requires, arbitrations.  Accordingly, because the FAA’s savings clause was inapplicable, and there was no evidence that the NLRA was exempt from the application of the FAA, the Fifth Circuit held that D.R. Horton’s arbitration agreement must be enforced as written.

The Fifth Circuit’s decision reaffirms the strength of the FAA, the Supreme Court’s Concepciondecision, and the ability of employers and employees to resolve disputes through individual arbitration.  Accordingly, we encourage all employers to consider putting into place an arbitration agreement that meets the employer’s objectives or, if they already have an existing arbitration agreement, to review the agreement to ensure that it contains the requisite language to comply with current law.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Gregg A. Fisch, Labor Employment Lawyer, Sheppard Mullin Law firm
Partner

Mr. Fisch is a partner in the Labor & Employment Practice Group in the firm's Century City office.

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