Sunday, January 8, 2012

NLRB Rules That Certain Mandatory Arbitration Agreements Violate Federal Labor Law

In an attempt to stem the rising tide of employment-related lawsuits, many employers require their employees to sign mandatory arbitration agreements.  Those agreements generally provide that all claims arising out of the employment relationship will be heard by an arbitrator or panel of arbitrators, rather than by a judge or jury.  In recent times, many employers also have included a provision prohibiting employees from combining their claims with others to form “class action” arbitration cases.

Now, the National Labor Relations Board has thrown a potential wrench into the mix.  The Board on Friday released a decision (copy available here) holding that it is a violation of federal labor law to require employees to sign arbitration agreements that prevent them from joining together to pursue employment-related legal claims in any forum, whether in arbitration or in court.  The decision examined one such agreement used by nationwide homebuilder D.R. Horton, under which employees waived their right to a judicial forum and agreed to bring all claims to an arbitrator on an individual basis.  The agreement prohibited the arbitrator from consolidating claims, fashioning a class or collective action, or awarding relief to a group or class of employees.

The Board found that the agreement unlawfully barred employees from engaging in “concerted activity” protected by the National Labor Relations Act.  Sound familiar?  It’s similar to the rationale used by the Board to explain how bashing an employer on Facebook is protected activity.

In an attempt to suggest that its decision is somehow compatible with the Supreme Court’s recent determination that a California courts’ refusal to enforce class action waivers in consumer arbitration agreements on the ground that the state law is preempted by the Federal Arbitration Act., the Board emphasized that the ruling does not actually require class arbitration as long as the agreement leaves open a judicial forum for group claims.  The decision requires Horton to rescind the agreement or revise it to make clear to employees that they are not waiving their right to pursue a class or collective action in all forums.

The decision is sure to be appealed, and it will likely be several years before the issue is finally resolved.  For now, however, employers should be prepared for the NLRB to challenge any arbitration agreement that appears to keep employees from being able to bring group arbitration actions.

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