NLRB Finds Arbitration Agreement Preventing Class Actions Unlawful

The National Labor Relations Board (NLRB or the Board) has ruled that the National Labor Relations Act (NLRA) prohibits employers from requiring employees to sign an arbitration agreement that precludes them from filing joint, class, or collective employment claims in any forum, whether in arbitration or in court.   The case arose after national homebuilder D.R. Horton required all of its employees (who were not represented by a union) to sign a “Mutual Arbitration Agreement” (MAA) as a condition of employment.  The MAA provided that (a) all employment disputes must be determined exclusively by an arbitrator; (b) the arbitrator may hear only individual employee claims and may not consolidate claims of multiple employees as a class or collective action; and (c) the employee waives the right to “file a lawsuit or other civil proceeding” relating to employment and the right to “resolve employment-related disputes in a proceeding before a judge or jury.” The Board found that the MAA violated Section (8)(1) of the NLRA, which makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in” Section 7 of the Act.  Section 7 vests in employees the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  According to the Board, an employee “who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7.”  The Board also concluded that its finding that the MAA is unlawful under the NLRA does not conflict with the Federal Arbitration Act, which generally favors the enforceability of arbitration agreements. The Board emphasized the limits of its decision.  Employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, both arbitral and judicial.  However, employers may insist that arbitral proceedings be conducted on an individual basis, so long as they leave open a judicial forum for class and collective claims.  Furthermore, the Board reminded, its holding affects only “employees” as the term is defined under the NLRA, which excludes supervisors, independent contractors, and certain other workers. In light of the ruling, AGC members are advised to review any mandatory arbitration agreements imposed on nonsupervisory employees and to consult legal counsel as needed.