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Fifth Circuit Rejects NLRB’s Class Action Waiver Ban

On Tuesday the U.S. Court of Appeals for the Fifth Circuit handed the National Labor Relations Board another legal setback when the Court reversed the Board’s D. R. Horton decision in which the Board held class action waivers in arbitration agreements were unlawful.

The dispute originally arose between employer D. R. Horton and one of its employees, Michael Cuda. It involved an employment agreement that required Cuda to resolve employment disputes through arbitration and to do so on an individual rather than a class basis. The agreement notwithstanding, Cuda sought arbitration on a class-wide basis asserting claims for alleged violations of the Fair Labor Standards Act.

Cuda also filed an Unfair Labor Practice Charge with the Board. His argument was that the class waiver provision unlawfully infringed on his right under the National Labor Relations Act to join with other employees to participate in “concerted activity” which is protected by Section 7 of the NLRA. The Board sided with Cuda and invalidated the class waiver provision in his employment agreement. D. R. Horton appealed the Board’s decision to the Fifth Circuit.

Yesterday, the Fifth Circuit reversed the Board. In doing so, the Fifth Circuit joined the Second, Eighth and Ninth Circuits and nearly two dozen lower federal courts. Essentially the Court held the Board focused too narrowly on effectuating the purposes of the NLRA to the exclusion of other important federal statutes and policies. In what may be viewed as a stiff rebuke to the Board, the Court wrote:

The Board has not been commissioned to effectuate the policies of the Labor Relations Act so single-mindedly that it may wholly ignore other and equally important Congressional objectives. Frequently the entire scope of Congressional purpose calls for careful accommodation of one statutory scheme to another, and it is not too much to demand of an administrative body that it undertake this accommodation without excessive emphasis upon its immediate task. We have accordingly never deferred to the Board’s remedial preferences where such preferences potentially trench upon federal statutes and policies unrelated to the NLRA.

While the Board declined to comment on the Court’s decision, it is likely the Board will seek Supreme Court review.  The Board also could continue to pursue Unfair Labor Practice Charges in those remaining jurisdictions where the issue in D. R. Horton has not been decided.  In the meantime, employers with employment agreements containing class action waivers and arbitration agreements can take comfort in the fact that unless the Supreme Court intervenes, the D. R. Horton decision is effectively dead.