On Dec. 3, 2013, in a landmark decision, the United States Court of Appeals for the Fifth Circuit rejected the argument that the National Labor Relations Act banned class and collective action waivers in employment arbitration agreements. This decision overturned the National Labor Relations Board's highly publicized and highly controversial, D.R. Horton decision. In doing so, the Fifth Circuit paved the way for employers to reconsider prior policies and include such waivers in their arbitration agreements with employees.
The NRLB invalidated an arbitration agreement that D.R. Horton asked each of its employees to sign as a condition of employment. The arbitration agreement at issue provided that the employees: (1) "voluntarily waiv[ed] all rights to trial in court before a judge or jury on all claims between them;" (2) agreed that "all disputes and claims" would "be determined exclusively by final and binding arbitration;" and (3) agreed that "the arbitrator [would] not have the authority to consolidate the claims of other employees" and would "not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding." In 2008, a D.R. Horton employee attempted to initiate an arbitration on behalf of a nationwide class of other employees, claiming he and others were misclassified as exempt under the Fair Labor Standards Act. After D.R. Horton alleged that the arbitration agreement at issue barred the collective arbitration, the employee filed an unfair labor practice charge, arguing that the arbitration agreement violated the NLRA.
The NLRB upheld the decision of the administrative law judge, which found that the arbitration agreement violated the NLRA because employees could reasonably read it to preclude the filing of unfair labor practice charges with the NLRB. But the NLRB also went a step farther and determined that the class and collective action waiver itself in the arbitration agreement also violated the NLRA. The NLRB ordered the employer to rescind the arbitration agreement or revise it to clarify that employees were not prohibited from filing unfair labor practice charges. The NLRB further held that class or collective waivers violated the NLRA.
In partially overturning the NLRB's decision in D.R. Horton, the Fifth Circuit first noted that while the NLRB is given deference when it interprets a statute under its purview, "[d]eference to the Board 'cannot be allowed to slip into a judicial inertia which results in the unauthorized assumption … of major policy decisions properly made by Congress.'" Specifically, arbitration agreements are enforced according to their terms under the Federal Arbitration Act, unless the FAA's "savings clause" invalidates the arbitration agreement or a "contrary congressional command" precludes the application of the FAA. The Fifth Circuit found that neither of these two exceptions applied.
First, the savings clause in the FAA states that arbitration agreements are valid and enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." The Fifth Circuit analyzed AT&T Mobility LLC v. Concepcion, which struck down a California prohibition on class action waivers in arbitration agreements. There the United States Supreme Court observed that the FAA's purpose was to ensure enforcement of arbitration agreements according to their terms "so as to facilitate streamlined proceedings." As the Supreme Court found in Concepcion, "the switch from bilateral to class arbitration sacrifices the principal advantage of arbitration — its informality — and makes the process slower, more costly and more likely to generate procedural morass than final judgment." Because requiring the availability of class or collective arbitrations disrupts the advantages of arbitration, such a requirement is inconsistent with the FAA's purpose. Thus, the savings clause is not applicable.
Second, a "congressional command" can exist in a statute's text, its legislative history, or in an "inherent conflict" between the statute's fundamental purpose and arbitration. However, the text of the NLRA contains no such express language overriding the FAA and, in fact, it does not mention arbitration at all. The legislative history of the NLRA further supports only the congressional intent to create a more equal playing field between employers and employees by empowering unions to bargain for employees, rather than an intent to allow employees the right to file class or collective actions. And the NLRA actually permits and requires arbitration, as courts have "repeatedly" found. The NLRB even acknowledged that arbitration plays a key role in federal labor relations policy. Therefore, because the NLRA has worked in tandem with arbitration agreements previously, it does not inherently conflict with the FAA.
In reaching these conclusions, the Fifth Circuit agreed with "numerous courts" that have concluded that there "is no substantive right to proceed collectively under the FLSA," which was directly at issue in the underlying dispute between D.R. Horton and its employees, or under "various [other] employment-related statutory frameworks." It also noted that the NLRA was enacted well before the enactment of the class action procedures of Federal Rule of Civil Procedure 23 or the collective action provisions of the FLSA. That is, the Fifth Circuit was not persuaded that there was an "inherent conflict" between the NLRA and the FAA when the NLRA was initially enacted in 1935 — and later reenacted in 1947 — before the class or collective action procedures even existed.
Lastly, the Fifth Circuit was "loathe" to create a conflict among the federal appellate courts. To that end, it followed the lead of the Second, Eighth and Ninth Circuits, which "suggested or expressly stated" that they would not follow the NLRB's rationale in D.R. Horton. With that in mind, the Fifth Circuit held that D.R. Horton's arbitration agreement must be enforced according to its terms.
In a separate issue, the Fifth Circuit enforced the NLRB's order to the extent it held that the language of D.R. Horton's arbitration agreement violated the NLRA. With respect to that issue, the Fifth Circuit noted that the language of D.R. Horton's arbitration agreement could be "misconstrued" as prohibiting an employee's filing of an unfair labor practice charge. For example, the Fifth Circuit specifically found that the acknowledgment in the arbitration agreement could be misconstrued to the extent it stated that the employee "knowingly and voluntarily waiv[es] the right to file a lawsuit or other civil proceeding relating to [e]mployee's employment with [D.R. Horton] as well as the right to resolve employment-related disputes in a proceeding before a judge or jury." That is, arbitration agreements cannot prohibit the filing of unfair labor practice charges with the NLRB. And even if the arbitration agreement does not expressly prohibit such filings, it may still violate the NLRA if it can be "reasonably constru[ed]" to do so.
In light of this ruling as a whole, employers in Texas should reevaluate and reconsider their arbitration agreements or arbitration policies. Specifically, because the Fifth Circuit has upheld class and collective action waivers by overturning the NLRB's decision in D.R. Horton, employers should consider whether to adopt such waivers in their existing agreements or include them in agreements they plan to use in the future. Employers should likewise consider how to tweak existing arbitration agreements or revise arbitration agreements for future use by ensuring that the language cannot be misconstrued as a prohibition on the filing of unfair labor practice charges with the NLRB. In sum, the Fifth Circuit's opinion in D.R. Horton creates a path for employers to follow in drafting and implementing their arbitration agreements."
If you have questions related to the content of this alert, please contact Labor and Employment Attorneys Carrie B. Hoffman (email@example.com or 214.999.4262) and Taylor E. White (firstname.lastname@example.org or 214.999.4992).