In D.R. Horton,1 an unprecedented, sweeping ruling affecting both unionized and nonunion employers alike, a two-member panel of the National Labor Relations Board (NLRB) held that an arbitration agreement that contains a class and collective action waiver clause—precluding employees from filing employment class or collective actions in court or arbitration—violates §8(a)(1) of the National Labor Relations Act (NLRA).

Procedural History

D.R. Horton, a home builder with locations in 20 states, began in January 2006 to require new and current employees to sign a Mandatory Arbitration Agreement (MAA) as a condition of employment. The MAA did not expressly exempt administrative charges filed with the NLRB or the Equal Employment Opportunity Commission. In addition, the MAA provided that the arbitrator did 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.”2

Michael Cuda, one of D.R. Horton’s non-union superintendents who had signed the MAA, gave notice of his intent to file classwide arbitration on behalf of D.R. Horton superintendents nationwide, alleging failure to pay overtime due to misclassification violative of the Fair Labor Standards Act (FLSA), 29 U.S.C. §§201 et seq. After the employer refused to process the arbitration request as a collective action barred by the MAA, Cuda filed an Unfair Labor Practice (ULP) charge with the NLRB, alleging that the class and collective action waiver in the MAA violated §§8(a)(1) and 8(a)(4) of the NLRA (the latter on the theory that employees were being led to believe they were prohibited from filing charges with the board).

After a hearing, an NLRB Administrative Law Judge (ALJ) determined that the MAA violated the NLRA by appearing to prohibit the filing of ULP charges with the board but that the MAA’s prohibition on class or collective actions did not violate the NLRA. Both sides filed exceptions to the ALJ’s decision with the NLRB. In June 2011, the board invited interested parties to file amicus briefs in the case on the latter ruling.

The board issued its decision on Jan. 3, 2012, and released it to the public on Jan. 6, 2012. It was authored by the two-member majority of Chairman Mark Pearce and Member Craig Becker, whose term expired on Jan. 3. Member Brian Hayes was recused from the case for unspecified reasons.

The Board’s Decision

In a relatively non-controversial part of the ruling, the board agreed with the ALJ that the MAA violated the NLRA by appearing to prohibit the filing of ULP charges with the board. Relying on prior decisions, the board held that a mandatory arbitration agreement must clearly state that employees maintain the right to file ULP charges with the board, similar to the right employees have to file administrative charges with the EEOC. Because the MAA was, at the least, silent or ambiguous on this point, the board found a violation of §8(a)(1) of the NLRA.3

More significantly, the board ruled that the class action waiver itself also violated §8(a)(1) of the act, which makes it an unfair labor practice “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in” §7.4 In turn, §7 protects employees’ right “to engage in…concerted activities for the purpose of collective bargaining or other mutual aid or protection.”5

Previous NLRB law had made clear that employees’ right to engage in concerted activities under §7 included the right to file a class action lawsuit, even if the underlying claim in that lawsuit had nothing to do with NLRA rights. D.R. Horton is the first time the board has held that even where employees are not discharged or disciplined for filing a class action lawsuit dealing with non-NLRA claims, they now are deemed to have a §7 right to be free of otherwise lawful employer efforts to insist on arbitration of those claims when the arbitration agreement precludes classwide proceedings. The board appears to be interpreting its authority to reach beyond labor law, which is governed by the NLRA, into employment law, which is governed by state contract law to the extent not preempted by the Federal Arbitration Act, 9 U.S.C. §§1 et seq.

In another innovation, the board invokes the Norris-LaGuardia Act of 1932 as one of the grounds of its decision, despite the fact that the board does not have the authority to enforce the provisions of the Norris-LaGuardia Act. In determining that requiring employees to sign the MAA as a condition of employment violated §8(a)(1) of the act, the board likened class action waivers to unlawful “yellow dog” contracts, which prohibit employees from joining labor unions. Thus, in addition to violating the NLRA, the board found that such agreements would also be unenforceable under the Norris-LaGuardia Act of 1932, 29 U.S.C. §§101 et seq.

After finding that the MAA violated the NLRA and the Norris-LaGuardia Act, the board then considered whether its ruling conflicted with Supreme Court precedent under the Federal Arbitration Act (FAA) which requires arbitration agreements be enforced according to their terms and that such agreements can encompass federal statutory claims unless Congress clearly intended to preclude a waiver of judicial remedies for rights arising under the particular statute.6 The board concluded that the two statutes did not conflict, but that, even if they did, there are “strong indications” that the FAA would have to yield to the Norris-LaGuardia Act’s prohibition on yellow-dog contracts: “To the extent the FAA requires giving effect to…an agreement [requiring arbitration but barring collective claims], it would conflict with the Norris-LaGuardia Act.”7

The board declined to give any weight to the recent Supreme Court decision in AT&T Mobility v. Concepcion,8 finding that the case (1) dealt with a state law conflict rather than a federal law conflict; and (2) involved consumer claims rather than employment claims, reasoning that employment claims inherently would have smaller classes than consumer claims and would undermine the informality of the arbitration process to a much lesser degree. The labor relations agency, of course, had no occasion to consider the effect of the Jan. 10 Supreme Court decision in CompuCredit Corp. v. Greenwood, declining to find a federal statute expressly referring to the right to file lawsuits and allowing for use of the class action mechanism sufficiently clear to override the FAA-based presumption that arbitration agreements are to be enforced according to their terms.9

In its D.R. Horton decision, the board sought to downplay the obvious significance of its ruling in several ways. For example, the board stated that its holding applies only to employment arbitration agreements that include a class or collective action waiver in all fora. Therefore, an agreement that requires individual employees to arbitrate their disputes and that does not address the role of class or collective actions is presumably unaffected by this decision. In addition, the board confirmed that its holding applies only to “employees” as defined by the NLRA, which would exclude supervisors and certain other types of workers. D.R. Horton appears not to have made the argument that Cuda was a supervisor excluded from the NLRA’s protection.

In our view, D.R. Horton is a problematic ruling for several reasons. First, the board remarkably invokes the Norris-LaGuardia Act as one of the bases for its holding that the FAA must yield to labor law, but the Norris-LaGuardia Act heretofore has not been thought to be enforced by the NLRB, and its prohibition of “yellow dog” contracts is expressly limited to agreements whereby employees agree “not to join, become, or remain a member of any labor organization….”10

Second, the board likely lacks authority to regulate most individual contracts executed between non-union employees and their employers. The board has no general jurisdiction even over collectively bargained agreements between unions and employees. The NLRA right to engage in concerted activities is now being read as a warrant to regulate the perceived fairness of employment contracts in the non-union sector.

Finally, D.R. Horton can also be faulted for failing to give sufficient effect to the Supreme Court’s FAA jurisprudence—now over 25 years old—that arbitration agreements are to be enforced according to their terms, unless they violate generally applicable contract law that would void any agreement11 or they require the waiver of a federal substantive right. As the recent 8-1 decision of the Supreme Court in CompuCredit makes clear, it will take much stronger textual evidence than the language of §7 or the intimations from the Norris-LaGuardia Act to overcome the FAA-based presumption of arbitrability.

The Status of the Board

The board’s D.R. Horton decision came at a particularly unsettled time in the board’s history. Under the Supreme Court’s New Process Steel v. NLRB decision,12 the board is unable to act with fewer than three members. From August 2011 until Becker’s term expired, the board operated with only three members, one of whom—Becker—was an unconfirmed recess appointment. The board rushed through numerous important decisions and actions before Becker’s departure, including promulgating significant and controversial changes to its rules for conducting union elections on Dec. 22, 2011.

The board also released several important decisions, including D.R. Horton, apparently after Becker’s term expired. Nothing is certain about the board’s latest controversial decisions and actions, other than the complicated and potentially lengthy litigation that will be generated.

Samuel Estreicher is the Dwight D. Opperman Professor at New York University School of Law and of counsel to Jones Day. Kristina A. Yost is an associate at Jones Day. The firm filed an amicus brief in ‘D.R. Horton’ on behalf of several groups, arguing that class action waivers were enforceable.

Endnotes:

1. 357 NLRB No. 184 (Jan. 3, 2011).

2. Id. at 1.

3. The board found it unnecessary to decide whether this also violated §8(a)(4) of the act because the additional violation would not affect the remedy issued.

4. 29 U.S.C. §158(a)(1).

5. 29 U.S.C. §157.

6. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991) (finding that “having made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue”) (internal citation and quotation marks omitted).

7. 357 NLRB No. 184, at 12.

8. 131 S.Ct. 1740 (2011).

9. No. 10-948, 565 U.S. –, 2012 WL 43514 (Jan. 10, 2012).

10. 29 U.S.C. §103(a).

11. 9 U.S.C. §2.

12. 130 S. Ct. 2635 (2010).