Fifth Circuit Holds Class Arbitration Waivers Do Not Violate the NLRA

The Fifth Circuit has ruled that employers may require workers to resolve employment disputes through individual arbitration.  In D.R. Horton, Inc. v. N.L.R.B., No. 12-60031 (5th Cir. December 3, 2013), a superintendent for home builder D.R. Horton, Michael Cuda, signed a mutual arbitration agreement (Agreement) that barred class action or collective claims as a condition of his continued employment.  Two years after Cuda’s employment at D.R. Horton ended, he sought to initiate class arbitration proceedings against his former employer over alleged violations of the Fair Labor Standards Act.  After D.R. Horton responded by stating that Cuda was required to initiate individual arbitral proceedings under the Agreement, Cuda filed a complaint alleging the class action waiver included in the Agreement violated the National Labor Relations Act (NLRA).

An administrative law judge found that the Agreement violated the NLRA because its terms could reasonably lead a worker to believe he or she was precluded from filing a complaint with the National Labor Relations Board (NLRB).  Later, a panel for the NLRB issued a decision that not only agreed with the judge but also stated the class waiver included in the Agreement violated the provisions of the NLRA.  The panel directed D.R. Horton to rescind or revise the Agreement to ensure that workers were made aware they could file a charge with the NLRB and to clarify that class action claims were not prohibited.  D.R. Horton responded by filing a petition for review of the NLRB’s decision with the United States Court of Appeals for the Fifth Circuit.

On appeal, the Fifth Circuit stated although the courts will provide the NLRB with “judicial deference when it interprets an ambiguous provision of a statute that it administers,” they will not defer “to the Board’s remedial preferences where such preferences potentially trench upon federal statutes and policies unrelated to the NLRA.”  The court said although NLRB precedent and some circuit courts have held that Section 7 of the NLRA “protects collective-suit filings,” class action procedures are “not a substantive right.”

The Fifth Circuit continued its analysis,

…there are numerous decisions holding that there is no right to use class procedures under various employment-related statutory frameworks. For example, the Supreme Court has determined that there is no substantive right to class procedures under the Age Discrimination in Employment Act, 29 U.S.C.§ 621 et seq. (“ADEA”), despite the statute providing for class procedures. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991). Similarly, numerous courts have held that there is no substantive right to proceed collectively under the FLSA, the statute under which Cuda originally brought suit. Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 298 (5th Cir.2004); see also Adkins v. Labor Ready, Inc., 303 F.3d 496,506 (4th Cir. 2002); Kuehner v. Dickinson & Co., 84 F.3d 316, 319-20 (9th Cir. 1996).

Next, the appeals court addressed the NLRB’s finding “that invalidating restrictions on class or collective actions would not conflict with the” Federal Arbitration Act (FAA).  The court said,

We now evaluate the Board’s reasoning. We start with the requirement under the FAA that arbitration agreements must be enforced according to their terms. CompuCredit, 132 S. Ct. at 669. Two exceptions to this rule are at issue here: (1) an arbitration agreement may be invalidated on any ground that would invalidate a contract under the FAA’s “saving clause,” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1746 (2011); and (2) application of the FAA may be precluded by another statute’s contrary congressional command, CompuCredit, 132 S. Ct. at 669.

The Fifth Circuit stated the NLRB “clearly relied on the FAA”s savings clause.”  The appeals court held,

The Board found that the Mutual Arbitration Agreement violated the collective action provisions of the NLRA, making the saving clause applicable. A detailed analysis of Concepcion leads to the conclusion that the Board’s rule does not fit within the FAA’s saving clause.

The Court of Appeals continued,

Like the statute in Concepcion, the Board’s interpretation prohibits class-action waivers. While the Board’s interpretation is facially neutral – requiring only that employees have access to collective procedures in an arbitral or judicial forum – the effect of this interpretation is to disfavor arbitration. … Requiring a class mechanism is an actual impediment to arbitration and violates the FAA. The saving clause is not a basis for invalidating the waiver of class procedures in the arbitration agreement.

Next, the Fifth Circuit examined whether a congressional command to override the FAA existed.  First, the court stated any doubts must be “resolved in favor of arbitration.” Next, the court held,

There is no argument that the NLRA’s text contains explicit language of a congressional intent to override the FAA. Instead, it is the general thrust of the NLRA – how it operates, its goal of equalizing bargaining power – from which the command potentially is found. … The NLRA does not explicitly provide for such a collective action, much less the procedures such an action would employ. 29 U.S.C. § 157. Thus, there is no basis on which to find that the text of the NLRA supports a congressional command to override the FAA.

After that, the court said “Neither the NLRA’s statutory text nor its legislative history contains a congressional command against application of the FAA.”

The Fifth Circuit overturned the NLRB’s decision with regard to the class action provision included in the Agreement by stating,

The NLRA should not be understood to contain a congressional command overriding application of the FAA. The burden is with the party opposing arbitration, Gilmer, 500 U.S. at 26, and here the Board has not shown that the NLRA’s language, legislative history, or purpose support finding the necessary congressional command. Because the Board’s interpretation does not fall within the FAA’s “saving clause,” and because the NLRA does not contain a congressional command exempting the statute from application of the FAA, the Mutual Arbitration Agreement must be enforced according to its terms.

Finally, the court held the NLRB’s order to amend the terms of the Agreement that might reasonably lead a worker to believe he or she was precluded from filing a complaint with the NLRB should be enforced.