Fifth Circuit Rejects NLRB's D.R. Horton Decision - Too Soon For Champagne?

Arbitration is quickly becoming a major vehicle to resolve individual employee disputes. Now another obstacle to enforcing those arbitration agreements and class action waivers may have been removed.

The Fifth Circuit issued a 2-1 decision on Tuesday in which the court largely denied enforcement of the National Labor Relations Board's controversial D.R. Horton decision. D.R. Horton, Inc. v. NLRB, Case No. 12-60031 (5th Cir. Dec. 3, 2013). As explained in prior postings, the NLRB held in D.R. Horton that employee class waivers violate Section 7 of the National Labor Relations Act, 29 U.S.C. § 157, which protects concerted employee activities. See 357 N.L.R.B. No. 184 (2012). The NLRB rejected the notion of Federal Arbitration Act preemption on the basis that the NLRA is also a federal statute.

The Appellate Analysis

The Fifth Circuit disagreed. The court began its analysis of the NLRB's reasoning with an observation that the FAA requires arbitration agreements to be enforced as written unless one of two exceptions applies. First, arbitration agreements can be voided on any grounds that would be sufficient to void any other contract, e.g., where the agreement lacks mutuality or is unconscionable. Second, arbitration agreements are unenforceable in cases where Congress has issued a "contrary command," such as explicit statutory language to supplant the FAA, the NLRA's legislative history or from the necessary "thrust of the NLRA." The court specified that the NLRB, as the party opposing arbitration, had the burden to establish the applicability of the exceptions.

Regarding the first exception, the NLRB argued that mandatory arbitration agreements with class waivers have an unlawful objective. Specifically, the NLRB argued, such agreements deny employees their right under the NLRA to act collectively in regard to their terms and conditions of employment. The Fifth Circuit rejected this argument based on the Supreme Court's decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Noting that the California statute at issue in Concepcion had expressly prohibited class action waivers, the court held that the Board's interpretation of the NLRA would have the same effect. Because the "effect of this interpretation is to disfavor arbitration," the Fifth Circuit held that it was precluded by Concepcion. (Slip Op. at 20).

Turning to the "contrary command" exception, the Fifth Circuit explained that such a command must be established in a...