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Class Action Waivers in Employee Arbitration Provisions: Proceed with Caution – For Now.

Employee arbitration provisions containing class or collective action waivers are frequently utilized by non-union employers, often within employment agreements as a condition of employment.  The National Labor Relations Board (NLRB), however, recently issued a decision regarding the validity of such provisions which could significantly impact the ability of employers to enforce class waivers.

In D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012), the NLRB considered the validity of a binding arbitration provision, executed by each of a company’s new employees as a condition of employment, which prohibited employees from bringing any class or collective action proceeding.  The NLRB ruled that the provision’s prohibition against class and collective action proceedings was violative of Section 8(a)(1) of the National Labor Relations Act (NLRA) insofar as it infringed the employees’ rights to engage in concerted action for mutual aid or protection.  The NLRB specifically found that its decision striking down the enforcement of these arbitration provisions did not conflict with the Federal Arbitration Act’s (FAA) established policy favoring enforcement of arbitration agreements.

Troublingly, this decision conflicts with recent U.S. Supreme Court precedent on mandatory arbitration provisions.  In AT&T Mobility, LLC v. Concepcion, 131 S.Ct. 1740 (2011), the Supreme Court expressly upheld the use of class action waivers in arbitration agreements, albeit on a somewhat different factual underpinning (the arbitration clause at issue in Concepcion was contained in customer cell phone contracts).  In Concepcion, the U.S. Supreme Court found that the longstanding, liberal policy favoring arbitration and the validity of arbitration agreements under the FAA was at odds with any effort to avoid an arbitration provision – even when the arbitration provision goes so far as to disallow class proceedings.  Though Concepcion considered an arbitration clause pertaining to a customer contract rather than to an employment agreement, the Supreme Court’s ruling confirmed a strong bias in favor of upholding arbitration provisions on the fundamental principle that arbitration is a matter of contract and such agreements should be enforced strictly according to their terms – a rationale directly at odds with the NLRB’s holding in D.R. Horton, Inc. 

Interestingly,another recent Federal Court ruling in the Second Circuit[1], decided just 10 days after D.R. Horton, Inc.,cited specifically to Concepcion for support in upholding the validity of a class waiver contained in an arbitration provision.  Arguably, therefore, the NLRB’s rationale in D.R. Horton, Inc. does not reflect the prevailing interpretation of the FLSA and the FAA.  It is thus possible that the holding in D.R. Horton, Inc. will ultimately be overturned (a petition for review has been filed in the Fifth Circuit) so long as the reviewing court is willing to extend the precedent established in Concepcion to the employer/employee context.

Whether or not the D.R. Horton, Inc. decision is overturned, it is clear that the NLRB is focusing on non-unionized employers with increasing scrutiny and seems determined to oppose the use of any exceedingly restrictive arbitration provisions.  Employers would be wise to review the scope of their arbitration provisions – specifically with respect to the existence of any class or collective action waivers – and should keep abreast of how the reviewing courts ultimately rule on the D.R. Horton, Inc. decision.

This article is intended as a summary of newly enacted federal law and does not constitute legal advice.


[1] See LaVoice v. UBS Financial Services, 2012 WL 124950 (USDC, S.D. New York Jan. 13, 2012)

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