A Heaping Helping Of Bad Law And A Side Of Full Disclosure

In one of its last rulings before Member Becker's recess appointment ended, the National Labor Relations Board ("NLRB") has held that individual agreements between an employer and an employee covered by the National Labor Relations Act ("NLRA"), which require the arbitration of employment-related claims arising under other federal and state statutes, but do not allow class actions, are illegal. D.R. Horton, Inc., 357 NLRB No. 184 (January 3, 2012).

The case involved D.R. Horton's Mandatory Arbitration Agreement ("MAA"). Under the MAA all employees were individually prohibited, as a condition of employment, from pursuing class or collective actions in any forum, judicial or arbitral. The Board held that this violated the employee's right "to engage in . . . concerted activities for . . . mutual aid or protection" under Section 7 of the NLRA, 29 U.S.C. § 157.

The decision hinged on four principle factors. First, the Board recognized that participating in a class action employment related suit is protected under Section 7 of the NLRA.

Second, the Board held that the maintenance of the MAA is unlawful under the test set out in Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004), because the MAA explicitly restricts activities protected by Section 7.

Third, the Board cited Supreme Court cases – notably National Licorice Co. v. NLRB, 309 U.S. 350 (1940) and J.I. Case Co. v. NLRB, 321 U.S. 332 (1944) – for the proposition that individual employment contracts cannot waive rights guaranteed by the NLRA.

Fourth, the Board cited the Norris-LaGuardia Act, 29 U.S.C. §101 et seq. ("N-LG Act"), public policy against interference with "concerted activities for the purpose of . . . mutual aid or protection" (N-LG Act §102) and its provision that "any . . . undertaking or promise in conflict with [that] public policy . . . shall not be enforceable in any court of the United States" (N-LG Act §103). This public policy informed the Board's view that the MAA was illegal.

Notably, the Board distinguished the ruling in 14 Penn Plaza LLC v. Pyett, 356 U.S. 247 (2009), in which a union, in a collective bargaining agreement, agreed to individual arbitration in lieu of judicial or arbitral class actions for covered employees. The Board recognized it was well settled that a union may waive certain Section 7 rights of the employees it represents in exchange for concessions from the employer.

The Board also averred that its decision did not bring the NLRA into...