Court slams board’s anti-arbitration ruling

January 19, 2014

Chicago Daily Law Bulletin

Author(s): Frank J. Saibert

Frank J. Saibert authors article in Chicago Daily Law Bulletin

In recent years, many employers have turned to arbitration agreements with their employees to evade federal or state court litigation over alleged civil rights violations and the like.

In these employers’ view, the perceived advantages of arbitration over going to court are substantial — limited discovery, less cost, faster results and, above all, no jury trial.

These advantages, whether actually realized or not, are considered even more important when arbitration agreements are applied to avoid the legal morass that can come with threatened or actual class actions.

The National Labor Relations Board takes a dimmer view of some mandatory arbitration agreements. In its now notorious D.R. Horton, Inc. ruling, 357 NLRB No. 184 (2012), the board held that homebuilder Horton’s arbitration agreement, which waived its employees’ rights to participate in class or collective actions, violated the National Labor Relations Act.

According to the board in Horton, Horton’s arbitration agreement unlawfully interfered with the employees’ rights to engage in “protected concerted activities” for their mutual aid and protection.

But now, a divided panel of the 5th U.S. Circuit Court of Appeals has refused to enforce the board’s order in Horton, opening up the real possibility that such class waivers indeed are valid. D.R. Horton v. NLRB, No. 12-60031, Dec. 3, 2013.

Before the 5th Circuit, Horton claimed that the act, and particularly its Section 7, does not grant employees any substantive right to pursue collective or class claims. It further argued that in striking down the class waiver, the board impermissibly elevated the NLRA over the Federal Arbitration Act, which allows generally for these types of arbitration agreements.

The 5th Circuit majority first stated that courts traditionally cede deference to the board’s various interpretations of the act. But it pointedly noted that courts do not defer to the board where the board’s remedial preferences “potentially trench upon federal statutes and policies unrelated to the NLRA,” citing the U.S. Supreme Court’s decision in Hoffman Plastic Compounds Inc. v NLRB, 535 U.S. 137 (2002).

According to the 5th Circuit majority, most courts have held that the commencement of a class-action lawsuit is not a substantive right and that multiple court decisions teach that “there is no right to use class procedures under various employment-related statutory frameworks.”

The 5th Circuit majority then examined the interplay between the NLRA and the FAA. Pointing out that the NLRA does not provide specifically for class actions or claims, the court concluded that “there is no basis on which to find that the text of the NLRA supports a congressional command to override the FAA.”

Indeed, claimed the court majority, the NLRA appears to permit, and in certain circumstances may require, arbitration. Accordingly, the court wrote, “the NLRA has no inherent conflict with the FAA.”

A dissenting judge would have upheld the board’s Horton decision. In his view, the board’s decision did not conflict with the FAA and he would have allowed more deference to the board’s supposed expertise in employment matters.

“The board made it clear that it was not mandating class arbitration in order to protect employees’ rights under the NLRA, but rather was holding that employers may not compel employees to waive their NLRA right to collectively pursue litigation claims in all forums, judicial and arbitral,” the dissent wrote.

Despite the diverging views on the arbitration agreement’s overall enforceability, all three judges on the panel agreed that the board was entitled to enforcement on that part of its order requiring Horton to clarify that its agreement would not prevent employees from engaging in activities truly protected by the act.

Of specific concern to the court was the fact that nothing in the agreement expressly preserved employee rights to file unfair labor practice charges with the board.

Reprinted with permission from Law Bulletin Publishing Company.

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