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FMG Law Blog Line

NLRB Holds Arbitration Clauses that Restrict Class Actions Violate the NLRA

Posted on: January 11th, 2012

By Brad Adler and Anthony Del Rio

On January 6, 2012, the National Labor Relations Board (NLRB) released a decision holding that employers cannot require employees to sign arbitration agreements that bar employees from bringing class (including collective) claims before a judicial body.  D.R. Horton, Case 12-CA-25764 (NLRB Jan. 3, 2012).  The ruling came down 2-0, supported by both Democrat members Chairman Mark Pearce and Member Craig Becker (notably on the final day of his appointment).  Republican Member Brian Hayes recused himself from the case.  The decision applies to all employers/employees covered under the NLRA.  

The NLRB reasoned that, by restricting collective actions, the company was preventing the employees from engaging in concerted activity protected under Section 7 of the NLRA.  The agreement at issue in the decision required both the employee and the employer to agree to bring all claims to an arbitrator on an individual basis.  In addition, the agreement prohibited the arbitrator from consolidating claims, creating a collective action, or awarding relief to a group or class.  The NLRB’s ruling requires the company to rescind the agreement or revise it to permit employees to pursue a class of collective action in a judicial forum.  The Board expressly permitted restricting arbitration to an individual basis, but employees must then be permitted to bring a class or collective action in court.

The NLRB’s decision will certainly be appealed.  Given that the United States Supreme Court recently held that similar arbitration clauses in the consumer setting were lawful (AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011)), there is a reasonable basis to believe that the courts may eventually reverse the NLRB’s decision.  Also, many believe that, while an appeal of the NLRB’s decision is pending, courts may be reluctant to strike down or limit arbitration agreements with class claim bars.

Still, until the D.R. Horton decision is decided on appeal, an arbitration clause that bars class actions is subject to judicial attack.  Therefore, many employers are asking whether they should delete the bar against class claims in their arbitration agreements or if they do not, what are the implications for failing to do so.

Most likely, the greatest risk to employers who maintain an arbitration agreement with a class claim bar is that a court would strike down the entire arbitration agreement. In such a case, the employee could bring his individual claim in court.  That risk, however, does not seem great in most jurisdictions given the general judicial policy favoring arbitration agreements.  Also, the risk of the entire arbitration agreement being found unenforceable further can be reduced by including a severability clause providing that, if a court finds any part of the agreement unlawful, the rest still survives. In addition, a provision allowing the arbitrator to reform the agreement as needed to make it lawful further increases the probability that the rest of the agreement would survive even if the agreement had a class claim bar that was found to be unlawful.  FMG’s model arbitration agreement contains these provisions.

The downside to deleting provisions barring class claims until the NLRB’s decision is definitively decided by the courts is that an employer doing so would once again be subject to class or collective action claims.  For many employers, that is a risk that is too great and eliminates one of the major advantages of arbitration agreements.

Ultimately, many employers, based on their own circumstances, may reach different decisions on what is the best course until the NLRB’s controversial decision is fully and finally resolved. The reality is that any employer with arbitration agreements containing class claim bars will need to carefully consider the benefits, risks and practical implications of modifying or not modifying their agreements until the outcome of the class claim issue is settled.

For more information, contact Brad Adler at 770.818.1413 or[email protected] or Anthony Del Rio at 770.818.1436 or[email protected].

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