California Labor and Employment Defense Blog

NLRB Holds Class Arbitration Waivers Are an Unenforceable "Unfair Labor Practice" -- D.R. Horton, 357 NLRB No. 184

The National Labor Relations Board (NLRB) has now weighed into the fray concerning the enforceability of class arbitration waivers. Its January 3, 2012 decision in D.R. Horton, 357 NLRB No. 184, the Board held that class arbitration waivers are unenforceable under the federal National Labor Relations Act (“NLRA”).  

The Right to Bring Class-Wide Claims is a Form of “Protected Concerted Activity” under Section 7 of the NLRB.

As the Board’s decision explains, Section 7 of the NLRA expressly protects the rights of employees to engage in “concerted activity” for purposes of “mutual aid or protection.” Over 80 years of decisional law, the scope of this “mutual aid or protection” clause has been broadly interpreted to include just about any effort by more than one employee to raise complaints or improve working conditions. In addition, “the Board has consistently held that concerted legal action addressing wages, hours or working conditions is protected by Section 7.”

The Board then made the short analytical leap to conclude that class litigation is a form of protected concerted activity, holding that:

 When multiple named-employee-plaintiffs initiate the action, their activity is clearly concerted. In addition, the Board has long held that concerted activity includes conduct by a single employee if he or she “seek[s] to initiate or to induce or to prepare for group action.” [Citation] Clearly, an individual who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7. 

These forms of collective efforts to redress workplace wrongs or improve workplace conditions are at the core of what Congress intended to protect by adopting the broad language of Section 7. Such conduct is not peripheral but central to the Act's purposes. After all, if the Respondent's employees struck in order to induce the Respondent to comply with the FLSA, that form of concerted activity would clearly have been protected. See NLRB v. Washington Aluminum Co., 370 U.S. 9 (1962). Surely an Act expressly stating that “industrial strife” can be “avoided or substantially minimized if employers, employees, and labor organizations each recognize under law one another's legitimate rights in their relations with one another,” equally protects the concerted pursuit of workplace grievances in court or arbitration. To hold otherwise, the Supreme Court recognized in Eastex [Inc. v. NLRB, 437 U.S. 556 (1978)],“could ‘frustrate the policy of the Act to protect the right of workers to act together to better their working conditions.”’437 U.S. at 567 (quoting Washington Aluminum, 370 U.S. at 14).

By extension requiring employees to forego collective legal action is an “unfair labor practice” under Section 8(a)(1) of the Act, which prohibits any restraint or interference with Section 7 rights. 

At this point it is probably worth pointing out that (contrary to a misconception among many employers and employees), NLRB Section 7 rights are not limited to union members or union organizing activities. Rather, these rights extend to virtually all non-managerial employees regardless of union affiliation. Thus, the prohibition on waiving class litigation or arbitration rights under D.R. Horton, applies equally to union and non-union workforces alike.

Section 7 of The NLRB Trumps The Policy Concerns AT&T Mobility v. Concepcion.

In AT&T Mobility v. Concepcion, the U.S. Supreme Court upheld the enforceability of a class action waiver contained in a consumer arbitration agreement. However, as the NLRA was enacted after the FAA and is more specific in its protections it would necessarily trump the FAA and the holding in Concepcion. 

As a result, the D.R. Horton decision essentially holds that collective or class claims by employees must be carved out of any general rule upholding waivers in other contexts. As the Board explained:

[T]he holding in this case covers only one type of contract, that between an employer and its covered employees, in contrast to the broad rule adopted by the California Supreme Court at issue in AT&T Mobility. Accordingly, any intrusion on the policies underlying the FAA is similarly limited.

The Board’s interpretation of the NLRA is not, strictly speaking, binding on court or arbitration proceedings. However, it is very likely to be followed by any court or arbitrator tasked with deciding whether a class arbitration agreement is enforceable. Unless overturned on appeal, the D.R. Horton case thus appears to be a nearly fatal blow to employer attempts to enforce arbitration waivers.

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