On Friday, two members of the National Labor Relations Board ruled that an employer cannot require its employees to sign an arbitration agreement that prevents employees from collectively pursuing employment-related claims in all forums, including arbitration or the courts. In reaching this conclusion, the NLRB determined that its decision does not conflict with the Federal Arbitration Act (FAA) or the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion.

In D.R. Horton, Inc., the NLRB examined a Mutual Arbitration Agreement (MAA) that a home builder with operations in more than 20 states required each new and current employee to sign as a condition of employment. The MAA included a provision that all employment-related disputes must be resolved through individual arbitration, waiving employees’ rights to pursue class or collective claims in either a judicial or arbitral forum.

In 2008, an attorney for Michael Cuda, a former superintendent for the company, and four others gave notice of his intent to initiate arbitration on behalf of the five employees and a nationwide class of similarly situated workers. The attorney asserted that D.R. Horton was misclassifying the superintendents as exempt from the overtime provisions of the Fair Labor Standards Act.

In response, the employer said the attorney had failed to give effective notice of the intent to arbitrate because the MAA barred arbitration of collective claims. Employee Michael Cuda later filed an unfair labor practice charge with the NLRB.

An administrative law judge concluded that the employer had violated Section 8(a)(4) of the National Labor Relations Act by interfering with employee rights to file NLRB charges and give testimony. But the judge concluded that the policy did not violate Section 8(a)(1) of the NLRA by interfering with the employees’ right to engage in concerted activity for their mutual aid or protection.

NLRB Acting General Counsel Lafe E. Solomon filed exceptions with the Board on the Section 8(a)(1) ruling. After inviting amicus briefs, the NLRB considered the issue of “whether an employer violates Section 8(a)(1) of the [NLRA] when it requires employees covered by the [NLRA], as a condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours or other working conditions against the employer in any forum, arbitral or judicial.”

The NLRB determined that the MAA “unlawfully restricted the employees’ Section 7 right to engage in concerted action for mutual aid or protection.” The NLRB also found that there was no conflict between the NLRA and the FAA under the circumstances of the case, because the sole issue was the MAA’s complete prohibition of joint, class, or collective federal, state, or employment law claims in any forum.

As a result, the NLRB emphasized that its holding rested on “the conflict between the compelled waiver of the right to act collectively in any forum, judicial or arbitral, in an effort to vindicate workplace rights and the NLRA.” Thus, the “class action” waiver was determined to be an unfair labor practice.

The decision is very likely to be appealed, but in the meantime, employers using employment arbitration agreements may want to carefully consider the ramifications of this opinion. If you have questions on the ruling or employment arbitration agreements., please contact Steven W. Suflas at 856.761.3466 or suflas@ballardspahr.com, Daniel V. Johns at 215.864.8107 or johns@ballardspahr.com, Erin K. Clarke at 215.864.8318 or clarkee@ballardspahr.com, or the member of the Labor and Employment Group with whom you work.

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