Spencer Fane LLP Logo

NLRB Rules Certain Employment Agreements Violate Federal Labor Law

In what can only be described as an extremely far reaching ruling, the NLRB has for the first time ruled that an employer that has its employees sign an arbitration agreement limiting class and collective claims and forcing an employee to proceed in arbitration violates the National Labor Relations Act.  D. R. Horton, Inc., 357 NLRB No. 184 (2012)  In this case, the employees of D.R. Horton were required as a condition of employment to sign a mutual arbitration agreement in which the employee agreed to submit all employment disputes to individual arbitration and further provided that the arbitrator had no authority to consolidate claims or fashion a proceeding as a class or collective action.  This employer policy has support in two separate United States Supreme Court decisions. The Supreme Court in AT&T Mobility LLC v. Concepcion, U.S., No. 09-893, 4/27/11, permitted an arbitration provision contained in AT&T’s customer cellular telephone contract which also provided for individual arbitration and prohibited class proceedings.   The Supreme Court also ruled in favor of a restrictive arbitration agreement in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758, 1775–1776 (2010). 

Notwithstanding those rulings, the NLRB disregarded both Supreme Court cases by arguing that neither were employment cases.  Ultimately, the NLRB found that the agreement unlawfully barred employees from engaging in “concerted activity” protected by the National Labor Relations Act. 

“[W]e 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. So long as the employer leaves open a judicial forum for class and collective claims, employees’ NLRA rights are preserved without requiring the availability of classwide arbitration. Employers remain free to insist that arbitral proceedings be conducted on an individual basis.”

Some employers may argue that this explanation is a distinction without a difference since many claims – particularly wage and hour claims – are brought collectively in any event. 

Perhaps this ruling is not surprising, given the recent aggressiveness by the NLRB.  Employers could question whether the NLRB is addressing a problem that does not exist since employees cannot take claims to court under the National Labor Relations Act in any event.  Certainly, this case will be seen as a bonanza for plaintiff’s lawyers and both collective and class action employment cases are likely to increase.  It may be years before we know the impact that this ruling will have on employers.  Early betting is that this case will end up in the Supreme Court.  Stay tuned.

For now, all employers should review their employment contracts to determine if the contracts contain class or collective action waivers.  Failing to review these agreements places an employer at risk of an unfair labor practice charge.