Foley & Lardner LLP

09 December 2013
Labor & Employment Law Perspectives

As the Class Waiver Turns — The Latest in the D.R. Horton Saga

Tuesday, December 3, 2013, marked the latest turn in the D.R. Horton saga. On Tuesday, the Fifth Circuit Court of Appeals rejected the National Labor Relations Board’s (the Board’s) January 3, 2012 ruling in the D.R. Horton case, which had found that D.R. Horton’s Mutual Arbitration Agreement was a violation of the National Labor Relations Act (NLRA) because it prohibited employees from participating in class or collective actions against the company. While the Fifth Circuit decision can be viewed as a major victory for employers, because the Board has national jurisdiction, the recent ruling need not determine its view on class and collective waivers in jurisdictions outside the Fifth Circuit (which includes Texas, Louisiana and Mississippi).

Nevertheless, the Fifth Circuit is just the latest court to reject the Board’s D.R. Horton decision. Indeed, other federal appellate courts have found the analysis by the Board to be less than persuasive when it comes to upsetting the apple cart arguably settled upon the road by the Supreme Court in its 2011 AT&T Mobility LLC v. Concepcion decision. In Concepcion, the Supreme Court held that an arbitration agreement requiring customers to arbitrate all claims, but precluding the same customers from joining such claims as a class action, was enforceable under the Federal Arbitration Act (FAA). In the recent Fifth Circuit case, the Board tried to distinguish the Supreme Court holding by noting that it was only concerned with agreements between employers and employees and that the NLRA specifically demanded that employees be allowed to join in a collective action to enforce their rights protected by the Act. The attempt was rejected.

The Fifth Circuit first found that, as the Supreme Court has held, there is no substantive right to a class or collective action. Rather, class and collective actions are procedural processes that are inconsistent with the goal of simple, efficient, and cost-effective arbitration, which is also the goal furthered by the FAA. Second, the court noted that the NLRA does not get to ride roughshod over the FAA unless there is a clear congressional mandate or command to that effect, and, there is no such mandate in the NLRA.

Bottom line – the federal courts continue to indicate that employers may require employees to pursue employment claims via arbitration (though there must be an exception for pursuing rights under the NLRA before the Board as well), and direct that such arbitrations can be limited to individual pursuits (i.e., no class or collective actions). And, while the “new” Board is not expected to give up lightly, and may, in fact, continue to pursue its policy that any employer who precludes class or collective arbitration commits an unfair labor practice, the tide in this ocean has definitely been enhanced and employers can feel fairly confident that, if drafted correctly, their arbitration agreements can likely eliminate much class and collective action exposure. The potential flipside however, coming through a question that has not been answered in this new age of arbitration and the elimination of class/collective actions, is what is the impact when confronted by a plaintiffs’ law firm with the wherewithal and patience to file and pursue hundreds or thousands of arbitrations on behalf of individual employees? Would costs and exposure really be reduced, or might the costs be enhanced?