Now more than ever, employers are requiring employees sign mandatory, pre-dispute arbitration agreements. In D.R. Horton, Inc., 357 N.L.R.B. 184 (Jan. 3, 2012), the National Labor Relations Board (the “Board”) held that a mandatory, pre-dispute arbitration clause that prohibited employees from pursuing group or class-wide relief in both arbitral and judicial forums violated employees’ rights under the National Labor Relations Act (“NLRA”).
Facts of the Case
D.R. Horton required its employees sign an agreement requiring that all employment disputes be submitted to arbitration. The agreement provided that the arbitrator may only hear individual claims, and prohibited the arbitrator from consolidating individual claims, structuring claims as class or collective actions, and awarding relief to a group or class of employees in one proceeding.
When employees tried to initiate a class-wide arbitration claim for unpaid overtime under the federal Fair Labor Standards Act, D.R. Horton argued that the class-wide claim was banned pursuant to the arbitration agreement. In response, the employees maintained that the clause violated their rights under the NLRA to engage in “protected, concerted activities.”
Section 7 of the NLRA protects the rights of employees to “engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The Supreme Court has traditionally interpreted this provision as protecting employees’ rights to join together to pursue workplace grievances through group or class action litigation. In D.R. Horton, the Board ruled that Section 7 of the NLRA prohibits mandatory, pre-dispute arbitration clauses that cause employees to waive these rights.
Which private sector employers/employees are affected by this decision?
Almost all private sector employers are subject to the NLRA, even if they are not unionized. However, certain employers in the agricultural, railway and airline industries are exempt from the NLRA’s protections. Small businesses are subject to this requirement if their annual volume of business has “more than a slight effect on interstate commerce.” Also excluded are agricultural laborers, certain domestic service workers, independent contractors, employees working for a parent or spouse, and supervisory employees.
What are the practical consequences of this decision?
While the Board’s decision may be subject to appellate review, until any ruling to the contrary is issued, employers subject to the NLRA should closely review their pre-dispute arbitration agreements to ensure compliance with D.R. Horton.
Interestingly enough, the Board only addressed in D.R. Horton the situation of an arbitration agreement that prohibited both group or class-wide arbitration and litigation. It did not address whether employers may require employees to waive their right to pursue group or class-wide litigation if they are given the option of pursuing group or class-wide arbitration or vice versa.
The Board also provided one exception to their ruling: Employers may include a waiver of group or class-wife relief in their mandatory pre-dispute arbitration clauses if the waiver was collectively bargained for.
Furthermore, employers should make it clear in their pre-dispute arbitration agreements that employees are not precluded from filing unfair labor practice charges with the NLRB. The Board notes that, without providing such an exception, employees could easily interpret a mandatory arbitration clause as prohibiting the filing of unfair labor practice charges.
Finally, D.R. Horton leaves open the question of whether individually negotiated waivers of group or class-wide relief are permissible if they are not made a mandatory term or condition of employment.