Circuit Court Validates Class Action Waivers in Employment Arbitration Agreements

The U.S. Court of Appeals for the Fifth Circuit (LA, MS, TX) has overturned a National Labor Relations Board (“NLRB” or “Board”) decision prohibiting employers from requiring employees to sign arbitration agreements containing waivers of the right to pursue class action and collective action claims in court or arbitration. As reported earlier, the NLRB ruled that such a requirement interferes with employees’ rights under Section 7 of the National Labor Relations Act to engage in protected concerted activity. The court disagreed, finding that the NLRB failed to give proper weight to the Federal Arbitration Act (“FAA”). The court acknowledged that some cases lend support to the NLRB’s finding that collective and class claims are protected by Section 7. However, the FAA “has equal importance,” said the court, and “caselaw under the FAA points us in a different direction than the course taken by the Board.” The FAA generally requires enforcement of arbitration agreements according to their terms. The two exceptions to the rule were at issue in this case: (1) an arbitration agreement may be invalidated on any ground that would invalidate a contract under the FAA's "saving clause;” and (2) application of the FAA may be precluded by another statute's contrary congressional command. After conducting a lengthy analysis, the court concluded that neither of the exceptions applied. The court did uphold part of the Board’s decision, though. It found substantial evidence to support the conclusion that the particular arbitration agreement involved in the case violated the NRLA because employees could reasonably understand it to preclude them from filing unfair labor practice charges with the NRLB. The court, therefore, enforced the Board’s order requiring the employer to revise the agreement to clarify that employees remain free to pursue such charges with the NLRB. Many observers think that this case, or another case like it, will go to the Supreme Court. AGC will report on any significant developments. Meanwhile, members are encouraged to seek legal counsel to review any mandatory arbitration agreements in place. D.R. Horton, Inc. v. NLRB, Case No. 12-60031 (5th Cir., 12/3/1