NLRB Rules Class Action Waivers Imposed As Condition Of Employment In Mandatory Pre-Dispute Arbitration Procedure Are Unlawful

The National Labor Relations Board (the "Board") has held that it is an unfair labor practice under the National Labor Relations Act ("NLRA" or "Act") for employers to mandate pre-dispute arbitration agreements barring employees from bringing class or collective action statutory claims in court and in arbitration. Such a provision, the Board reasoned, interferes with the employee's statutory right under Section 8(a)(1) of the NLRA to engage in concerted activities for mutual aid and protection as protected under Section 7 of the Act. In this regard, even non-union employees enjoy Section 7 rights so long as they are not supervisors, managerial employees, or independent contractors, categories of workers excluded from the NLRA's protections. D.R. Horton, Inc., 357 NLRB No. 184 (January 3, 2012).

Clearly, the Board's decision has important implications for both unionized and non-union employers, and serves as a reminder that protected, concerted activity under the NLRA is not limited to union-related activity, but also may include the right to improve working conditions through class and collective litigation whether in court, before an administrative agency, or in arbitration. Section 7 of the NLRA states, in relevant part, that "[e]mployees shall have the right to . . . engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection. . . ." 29 USC § 157 (emphasis added). Thus, Section 7 gives covered employees the right to engage in concerted activities even though no union activity or collective bargaining is contemplated by the employees. Section 8 of the NLRA (29 USC § 158(a)(1)) makes it an unfair labor practice for an employer to "interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in [Section 7]."

Notably, the arbitration clause at issue in D.R. Horton was not found in a collective bargaining agreement ("CBA"). Rather, the clause was contained in what D.R. Horton called a Mutual Arbitration Agreement ("MAA"), which the Company imposed unilaterally as a condition of employment. Under D.R. Horton's MAA, as a condition of employment, all employees were barred from pursuing class or collective actions in any forum, judicial or arbitral. In a plurality decision authored by Board Members Pearce and Becker, the NLRB held that employees' ability to join together as a class for purposes of bringing a claim against their employer constitutes "concerted activity" for purposes of "mutual aid or protection" under Section 7. As such, D.R. Horton's mandatory arbitration provision was an unlawful restraint of statutorily protected rights.

The Board's Decision

Charging Party, Michael Cuda, was employed by D.R. Horton as a superintendent from July 2005 to April 2006. Cuda's continued employment was conditioned on his signing the MAA, which he did. In...