NLRB Finds Arbitration Provision Banning Class and Collective Actions Unlawful

On January 3, the National Labor Relations Board ruled that a Florida-based home builder committed an unfair labor practice by requiring employees to sign a mandatory arbitration agreement that waived their rights to participate in class or collective actions. D.R. Horton Inc. (357 N.L.R.B. No. 184, 1/3/12 [released 1/6/12]). Specifically, the agreement provided that an arbitrator “may hear only Employee’s individual claims and does 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.”

An employee of the home builder alleged that the agreement prevented him and other employees from pursuing wage claims under the Fair Labor Standards Act as a class or collective action in court. The NLRB agreed and held that the agreement violated Section 8(a)(1) of the National Labor Relations Act because it interfered with employees’ right to engage in protected, concerted activity. The NLRB required the employer to revise or rescind its mandatory arbitration agreement and also to provide notice to employees of the revised or rescinded agreement and of employees’ rights under the NLRA.

Addressing this issue of first impression for the NLRB, Members Mark Pearce and Craig Becker wrote that their finding does not conflict with the text or the policies of the Federal Arbitration Act. “Rather, we hold only that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial. So long as the employer leaves open a judicial forum for class and collective claims, employees’ NLRA rights are preserved without requiring the availability of class-wide arbitration. Employers remain free to insist that arbitral proceedings be conducted on an individual basis.”
Potential impacts of the ruling are that employers will have to rewrite their arbitration procedures if they include language that waives an employee’s right to participate in class or collective actions. And, employers may face more class or collective action claims by employees.