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In what could be a stunning upset of private arbitration agreements, the National Labor Relations Board (“NLRB”) has held that provisions in an arbitration agreement that prevent an arbitrator from considering a group, class or collective action violates the National Labor Relations Act and are unenforceable.


As a condition of employment, D. R. Horton, Inc., a national home builder, required employees to sign an arbitration Agreement by which the employees agreed to submit all employment disputes to final and binding arbitration.  In addition, the Agreement provided that, while the arbitrator would have the right to resolve an individual’s claim, he/she would not have jurisdiction to resolve group, class or collective disputes. 


The limitation on the arbitrator’s authority in the Horton Agreement is a common method by which employers seek to avoid the expensive process of litigating class and collective lawsuits without limiting the ability of the employee to have his/her individual claim or dispute resolved.


Shortly after signing one of these agreements, an employee filed a complaint alleging that he had been misclassified as exempt from overtime under the FLSA.  The complaint also asserted that there were other employees who were similarly situated and that the employee’s claim was in the nature of a nationwide class action.  The Employer, while permitting the employee to submit his individual complaint to an arbitrator, denied the arbitration demand as it related to the class allegations.  The employee filed an unfair labor practice charge with the NLRB, alleging that the limitation in the arbitration Agreement was an unlawful restriction on the employee’s right to engage in concerted activity and that the employer’s refusal to permit the case to proceed as a class action violated his rights under the NLRA. 


The case was heard first by an Administrative Law Judge.  The ALJ found that the Agreement was unlawfully vague in that the employee could believe that his right to submit any statutorily-based complaint to a relevant governmental administrative agency (e.g., EEOC, DOL) was prohibited.  Based on established judicial authority, the ALJ held that the right to file a complaint with a governmental administrative agency charged with the responsibility of administering a particular statute cannot be limited by an arbitration agreement, while the denial of access to a court to resolve a complaint based on an alleged violation of a statutory right may be permissible under the Federal Arbitration Act (“FAA”).  The confusion in the Agreement on that issue made the Agreement invalid.  That’s an established principle and not particularly noteworthy.


With regard to the limitation concerning group, class and collective actions, however, the ALJ found that the protection of concerted action provided by the NLRA was not violated by a private contract that did not impinge on the employee’s right to have the claim resolved by an otherwise lawful arbitration complying with the FAA.  This holding was consistent with a 2006 Memorandum by the General Counsel of the Board addressed to Regional offices as guidance (GC Memo 10-06).


On appeal to the Labor Board, a majority of a three member panel (Board, Chairman Pearce and Member Becker) upheld the ALJ’s decision regarding vagueness but reversed the ALJ on the issue of whether the arbitration Agreement violated the NLRA.  The Agreement’s limitation with regard to class and collective actions, they said, prohibited protected concerted activity.  As a consequence, the Agreement was unenforceable and either must be rescinded or modified to permit class and collective actions.  Member Hayes did not join the majority in the decision.


At its core, the case involved an apparent clash between the FAA that preserves the right of individual contracts to resolve disputes through arbitration and the NLRA that protects employee rights to engage in concerted actions with regard to terms and conditions of their employment. 


On the way to considering the core dispute, the Board said first that, even if the employee had not consulted with any other employee prior to his assertion of the class status of his complaint, the fact that he said that his complaint was on behalf of others as well as himself made his conduct concerted activity and protected by the NLRA.  The resolution of this preliminary issue was, by itself, a caution to employers that, when assessing the risk of any employment decision, regardless of whether the employee is represented by a union or not, the NLRA also must be considered.  While the Board will find that many actions by employees are on behalf of themselves alone and not protected by the NLRA, the Board defines “concerted” activity broadly and will stretch to find many actions that an employer may believe to be purely individual to the employee to be protected concerted activities.


As to the core issue, the Board held that the NLRA’s protection of concerted activity is not a procedural right but a substantive right and, therefore, the limitation on an arbitrator regarding class actions wais a waiver of a substantive right.  Since the intent of the FAA was to leave substantive rights undisturbed, the FAA would not be violated by the Board’s protection of the right to exercise a substantive right (in this case engaging in concerted activity).  Consequently, enforcement of the NLRA does not conflict with the FAA.  Besides, they said, the NLRA was passed after the FAA and contained a repealer of all inconsistent prior laws.  Therefore, conflicts between the two statutes have to be resolved in favor of the NLRA.


The subtlety in this case is that, while an employee’s access to a governmental agency statutorily charged with the responsibility of administering a particular law, such as the EEOC or DOL, cannot be taken away and replaced by arbitration, arbitration can replace adjudication of the substantive claim by a court where an arbitrator has the same rights and powers of a court to determine the merits of the claim and to fashion an appropriate remedy.  Here, however, while the arbitrator had the right to decide and remedy the claim of the individual, the arbitrator could not decide the claims of others that were brought on their behalf.  It was this right to state claims on behalf of others, that the Board said was a substantive right protected by the NLRA. 


This case is most certainly going to be appealed and the last word on the issue will be a court’s, perhaps even the Supreme Court’s.  In the meantime, however, employers who seek to limit their expense and risk of class and cooperative actions by foreclosing those kinds of cases from arbitration and restricting proceedings to individual matters need to be aware that the Labor Board would consider such limitations to violate the NLRA.  The conservative remedy would be to permit class and cooperative actions to be litigated in arbitration, at least until the issue is finally resolved by a court. 


Again, a decision of the Labor Board is having a direct and significant effect on non-union employers and there appears to be no let-up in the Board’s campaign to inject the NLRA into all aspects of all workplaces.  Employers considering employment decisions who limit their risk assessments to Title VII, the ADEA, the ADA, the FLSA and the state equivalents are dangerously short-sighted.  The current Labor Board is making it clear in case after case that the NLRA will be applied to all workplace decisions without regard to whether the workforce is represented by a union or not.




The impact of the NLRA on non-union workplaces will be discussed in greater detail and depth in my webinar on February 21.  To register for the webinar follow this link:  NLRB Rules for Non-Union Employers.










































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James Redeker

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« April 2014
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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.