Arbitration Agreement for Class Actions Enforceable, Fifth Circuit Overrules NLRB

In a major rebuke to the National Labor Relations Board (NLRB), the U.S. Court of Appeals for the Fifth Circuit recently ruled that mandatory arbitration agreements that waive the rights of employees to participate in class actions could be legal, if worded carefully. The decision, D.R. Horton, Inc. v. NLRB (5th Cir. 2013), overruled an NLRB decision from January 2012. In that decision, the NLRB found the arbitration agreement that D.R. Horton required its employees to sign violated the National Labor Relations Act (NLRA). Rejecting that decision, the Fifth Circuit said that the NLRB could not interpret the NLRA in such a way that it would trample on other statutes, including the Federal Arbitration Act, which permits arbitration for class actions.

The court did say that the NLRB couldĀ enforce the part of its ruling that required D.R. Horton to revise its arbitration agreement to make clear that the agreement did not prohibit employees from engaging in activity protected by the NLRA. While the NLRB could appealĀ this decision to the U.S. Supreme Court, for now this represents a substantial victory for employers who wish to use arbitration to settle class or collective actions.