Class Action Waivers in Arbitration Agreements Enforceable Says Fifth Circuit
The Fifth Circuit Court of Appeals (“Court”) recently held collective or class action waivers in arbitration agreements are enforceable – flatly rejecting the National Labor Relations Board’s (“Board”) decision in D.R. Horton v. NLRB.
In this case, homebuilder D.R. Horton (“Horton”) required new and current employees to sign a Mutual Arbitration Agreement (“Agreement”) as a condition of employment. There were several provisions in the Agreement that prevented employees from joining together and pursuing class or collective claims in arbitration. Rather, employees would have to pursue their claims individually. In 2008, a group of employees claimed they had been misclassified as exempt, and were owed overtime pay under the Fair Labor Standards Act. They sought to initiate arbitration proceedings as a group and Horton responded that the Agreement prevented such collective claims. The group then filed an unfair labor practice charge (“ULP”) alleging the class action waiver violated the National Labor Relations Act (“NLRA”), a law that gives employees the right to engage in certain concerted or group activities. The Board held the Agreement violated the NLRA because it required employees to waive their right to maintain collective employment-related actions in any forum and because employees would reasonably think the Agreement precluded or restricted their right to file charges with the Board. Horton appealed.
The Court rejected the Board’s conclusion and deemed class action waivers enforceable under the Federal Arbitration Act (“FAA”), a law which makes arbitration agreements binding and limits the reasons courts can review and set them aside. The Board’s claims that there was some applicable exception to the FAA were unfounded. The Court found that requiring the availability of class actions would actually be an impediment to arbitration in violation of the FAA. Further, the Court stated there was no language in the NLRA that suggested a congressional command to override the FAA, nor any legislative history or statutory text to suggest the NLRA related to arbitration.
However, the Court agreed with the Board on one issue. The Court conceded an employee could reasonably read the Agreement as precluding ULPs since it requires the employee acknowledge he or she waives the right to “file a lawsuit or other civil proceeding.” Therefore, the Court ordered Horton to take corrective action to remedy this provision.
For employers, this case is a big win. Employers may continue to include class action waivers in arbitration agreements. The only concern is the language can’t lead a reasonable person to believe his or her Section 7 rights or ability to file a ULP is in any way restricted. Employers should seek competent counsel to ensure the agreements are properly written. There is no indication this case will be appealed to the U.S. Supreme Court but we will keep you updated if this happens.
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