Class Action Decision by NLRB: More Grief for Employers

In a decision dated Jan. 3, 2012, the National Labor Relations Board (Board) issued its most recent decision protecting rights of employees not represented by a union. The decision in D.R. Horton, Inc., may have far-reaching implications for employment arbitration agreements that have become increasingly popular among employers. The upshot of the decision is that any arbitration agreements that employers insist employees sign, in which employees waive the right to pursue class actions or collective actions over employment claims in any forum, violate the rights of employees guaranteed by the National Labor Relations Act (Act).

Facts

As a condition of employment, D.R. Horton (Company) required employees to execute an agreement that provided that: all employment disputes an employee might have with the Company must be resolved exclusively in arbitration; such an arbitration proceeding could concern only an employee's individual claims (the arbitration agreement deprived the arbitrator of the authority to consolidate claims of other employees, or fashion class or collective action relief); employees could not file a lawsuit or other civil proceeding instead of arbitration.

A lawyer representing one of the Company's employees advised that he had been retained to represent the employee as the representative of a nation-wide class of similarly situated employees of the Company, and sought to initiate arbitration of the dispute. The Company refused to arbitrate, stating that, pursuant to the arbitration agreement the employee had signed, any arbitration needed to be limited to the employee's individual claims. An unfair labor practice charge was filed, leading to the Board decision.

Decision

The Board noted that the Act protects the rights of employees to engage in "concerted activities for the purpose of… mutual aid or protection." Determining, based on a long line of prior Board cases, that class or collective action is a form of concerted activity protected by the Act, the Board concluded that the arbitration agreement prohibited such concerted activity and was a violation of the Act.

The Board decided that its decision did not conflict with the Federal Arbitration Act since the Board was not prohibiting arbitration itself, but merely prohibiting employers from enforcing an arbitration agreement that violates the Act.

While the Board stated that its decision was "narrow" since it applies only to employees as defined in the Act, the decision is none the less very broad because the Act covers all employees of private sector employers (not government employers) who are not supervisors or, in some cases, managers or confidential employees.

The Board attempted to claim its holding is narrow by noting that it states simply that an employer could not prohibit all forms of collective action. The Board stated:

So long as the employer leaves open a judicial form for class and collective claims, employees' National Labor Relations Act rights are preserved without requiring the availability of class wide arbitration. Employers remain free to insist that arbitral proceedings be conducted on an individual basis. (emphasis in original)

The Board issued a cease and desist order prohibiting the employer from maintaining or attempting to enforce the arbitration agreement. Employers should not forego arbitration agreements entirely based solely on this decision because, in addition to continued applicability of the Horton-style agreements to employees not covered by the Act, many employment disputes are not readily amenable to class or collective actions. Nonetheless, if the D.R. Horton decision is not appealed and overturned by the courts, it will significantly restrict the ability of employers to resolve workplace disputes one-on-one in the less formal arbitration forum. Instead, the prospect which many employers fear most—the prospect of being essentially extorted into settlements as an alternative to the incredible costs associated with attempting to defend against even frivolous class and collective action claims—will present significant costs to businesses going forward.

Employers should stay tuned for future developments.

For more information on this or other labor and employment issues, please contact Michael Boldt at (317) 236-2327 or michael.boldt@icemiller.com or Bob Weisman at (614) 462-2239 or robert.weisman@icemiller.com or any member of Ice Miller’s Labor and Employment Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.