Court strikes down controversial labor decision

Barran Liebman
Oregon Law Firm

Fifth Circuit Strikes Down NLRB’s Controversial DR Horton Decision

In a much anticipated decision, the Fifth Circuit reversed the National Labor Relations Board (NLRB) and held that an employer may require employees to sign an arbitration agreement that precludes collective action claims. D.R. Horton, Incorporated v. National Labor Relations Board, Case No. 12-60031. Petitioner, D. R. Horton is a home builder operating throughout the United States. In 2006, it implemented a policy requiring all new and existing employees to sign, as a condition of employment, what it called, a Mutual Arbitration Agreement (Agreement). Under the terms of the Agreement, the employees agreed that all disputes and claims would be submitted exclusively to final and binding arbitration. Importantly, the Agreement also provided that “the arbitrator [would] not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding.”

A superintendent working for Horton, Michael Cuda, signed the arbitration agreement, but later initiated an arbitration claim for unpaid overtime on behalf of himself and others. After Horton invoked the prohibition of class claims under the Agreement, Cuda filed an unfair labor practice charge, asserting that the class-action waiver violated his Section 7 rights under the National Labor Relations Act (NLRA). The NLRB agreed with Cuda and held the Agreement unenforceable because it interfered with his right to engage in concerted activities.

Today, the Fifth Circuit rejected the NLRB’s reasoning and concluded the NLRB failed to give proper consideration to the Federal Arbitration Act (FAA), which allows parties to waive class action claims. As there is nothing in the NLRA that trumps the FAA’s policy in favor of giving full effect to arbitration agreements, the court concluded that Horton’s Agreement was therefore enforceable. Judge James Graves dissented from the decision arguing that the Agreement was void because “nothing in the text of the FAA suggests that an arbitration agreement that is inconsistent with the NLRA is nevertheless enforceable.”

For employers, the Fifth Circuit’s decision today is an unequivocal victory by having another circuit court strike down the NLRB’s overreach. Employers (at least in the Fifth Circuit) may now require as a condition of employment, that employees waive their right to pursue a class action remedy against the employer. Whether the standard announced today is adopted by other circuits or whether the Supreme Court decides to review the decision remains to be seen. We will continue to monitor the issue and keep you apprised of developments.

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