NLRB Limits Scope of Non-Union Arbitration Agreements
Many employers require their employees, as a condition of employment, to sign agreements stating that any dispute arising from their employment will be settled through arbitration, without resorting to the courts. In D. R. Horton, Inc. and Michael Cuda, the employer required employees to agree that all employment disputes would be determined “exclusively by final and binding arbitration.” Further, the agreement specified that employees could not consolidate their claims with those of other employees, that they could not proceed as a class or collective action with other employees and they waived “the right to file a lawsuit.”
Employee Michael Cuda retained a lawyer to file a nationwide class action on the ground that Horton was misclassifying employees as exempt from the Fair Labor Standards Act (“FLSA”) and failing to provide overtime. When the employer sought to invoke the arbitration agreement, Cuda filed an unfair labor practice charge with the National Labor Relations Board (“NLRB”) arguing that the arbitration agreement was invalid under the National Labor Relations Act (“NLRA”).
On January 3, 2012 the NLRB agreed, holding as follows:
- The law protects the right of employees to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection;
- This aspect of the law protects the right of employees to improve the terms and conditions of employment through channels outside the immediate employee/employer relationship;
- The right to engage in concerted activities includes the right to join together to pursue workplace grievances, including through litigation.
Accordingly, because the arbitration agreement in question required employees to refrain from bringing collective or class claims in court, that agreement illegally prevented employees from engaging in the type of collective action protected by the law. The Board held, “We find that the [arbitration agreement] expressly restricts protective activity.”
The employer argued that a decision by the NLRB to prohibit this type of arbitration agreement violated the Federal Arbitration Act (“FAA”), which provides for a liberal federal policy favoring arbitration agreements. However, the NLRB held that an arbitration agreement, even if favored under the FAA and Supreme Court decisions, could not require employees to give up substantive rights afforded them in another statute, and that the right to seek redress in the courts is a “core substantive right protected by the National Labor Relations Act.”
The holding in this case protects only the right of employees to raise “class and collective claims” in the courts. The NLRB expressly held that employers remain free to require arbitration agreements with employees, and to insist that such arbitration be conducted on an individual basis only, without recognizing a joint or collective claim. Further, this ruling applies only to statutory employees, not to supervisors and managers who are without the protections of the NLRA. Finally, the decision recognizes that employers may continue to require employees to waive the right to seek “redress” for their individual claims against the employer, and require those claims be asserted only through arbitration.
Employers who currently have arbitration agreements with their employees should now have them examined to ensure that they do not prohibit employees from bringing or joining collective or class actions in court when they have employment related disputes. Those agreements should also be reviewed if they allow class or collective action claims, but only in arbitration, or if they involve an agreement entered into by employees which was not a condition of employment (i.e., a purely voluntary agreement).
Because of the argument that the application of the NLRA in this case conflicts with the FAA, there is a likelihood that the courts will address this issue in the future, and employers who wish to maintain arbitration agreements will need to follow the continuing course of this case.
