Fifth Circuit Holds That NLRB Erred In Finding That Arbitration Agreements With Class Action Waivers Violate NLRA

On December 3, the Fifth Circuit, in D.R. Horton, Inc. v. National Labor Relations Board, rejected the National Labor Relations Board's ruling that Horton's mandatory arbitration agreement containing a class action waiver violated § 7 of the National Labor Relations Act. No. 12-60031, 2013 WL 6231617 (5th Cir. Dec. 3, 2013). The court reasoned that the NLRB "did not give proper weight to the Federal Arbitration Act," which made the arbitration agreement enforceable. Id. at *1. And according to the court, the NLRA, which protects the right of employees to engage in concerted activity, "should not be understood to contain a congressional command overriding the application of the FAA." Id. at *13. While this ruling certainly constitutes good news for employers, the Fifth Circuit added one cautionary note. The court found that although the class waiver was enforceable, Horton's arbitration agreement violated §§ 8(a)(1) and (4) of the NLRA because it included language that could lead employees to reasonably believe that they were precluded from filing unfair labor practice charges. Id. at *14. As a result, the court enforced the Board's order that Horton revise the document.

Case Background

Beginning in 2006, Horton required all employees to sign, as a condition of their employment, an agreement to submit all of their employment-related disputes to binding arbitration. Under this agreement, employees were barred from pursuing class or collective claims in an arbitral or judicial forum, and all employment-related disputes were to be resolved through individual arbitrations. In 2008, former Horton employee Michael Cuda sought to initiate a nationwide collective action via arbitration, claiming that he and similarly situated employees had been misclassified as exempt from the overtime provisions in the Fair Labor Standards Act. Noting that the arbitration agreement prohibited collective actions, Horton invited Cuda to file an individual arbitration proceeding. In response, Cuda filed an unfair labor practice charge in which he alleged that the class-action waiver violated the NLRA.

The Board's Decision

The NLRB concluded that Horton violated § 7 of the NLRA, which allows employees "to engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection." 29 U.S.C. § 157. According to the Board, the NLRA protects the right of employees to "join together to pursue workplace grievances, including through...