The National Labor Relations Board (“NLRB”) recent ruling in D.R. Horton, Inc. and Michael Cuda makes clear that mandatory arbitration agreements which prohibit employees from asserting class actions in court as well as in arbitration violate the National Labor Relations Act (“NLRA”).
The Mutual Arbitration Agreement (the “Agreement”) contemplated in D.R. Horton, Inc. entirely waived an employee’s ability to resolve an employment-related dispute with D.R. Horton (the “Company”) in court and required resolution of disputes through arbitration. In addition, the Agreement restricted the arbitrator to only hearing individual claims and expressly prohibited the arbitrator from consolidating claims or constructing a class or collective action. New and current employees were required to enter into the Agreement.
In 2008, a former employee, Michael Cuda, notified the Company that he intended to arbitrate a nationwide class action, based on the allegations that the Company improperly classified superintendents as exempt from the Fair Labor Standards Act. Mr. Cuda had been a superintendent at the Company from July 2005 to April 2006 and had signed the Agreement, as he was required to do. When the Company attempted to bar Mr. Cuda’s action pursuant to the Agreement, Mr. Cuda’s attorney filed an unfair labor practice charge with the NLRB.
The NLRB had to consider whether the Agreement violated Section 8(a)(1) of the NLRA, which prohibits employers from interfering with employee rights under the NLRA. Such interference is deemed an unfair labor practice. The NLRB determined that the employee’s rights contained in Section 7 to “engage in concerted action for mutual aid or protection” were subjected to inappropriate interference by the Company, thereby violating Section 8(a)(1). The NLRB also determined that its decision was consistent with the statutory provisions of the Federal Arbitration Act.
In order to provide certainty, the NLRB clearly set forth at the end of its decision what class-action rights may be restricted by an employment arbitration agreement. The NLRB explained, “we hold only that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial.” In other words, as long as an arbitration agreement allows employees to pursue class-action claims in at least the arbitral or judicial forum, employee rights under Section 7 the NLRA will not be violated.
It is strongly advised that employers review their employee arbitration agreements to determine whether the agreements permit employees to bring class-action claims in court or through arbitration. If so, the agreements are likely still enforceable. However, if the agreements entirely disregard an employee’s ability to bring a class or collective action, the enforceability of the agreement is likely in question, and the agreement should be reconsidered with the assistance of legal counsel.
All comments contained in this alert are subject to change pending an appeal of the NLRB decision in D.R. Horton to the U.S. Court of Appeals.
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