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Fifth Circuit Rejects NLRB's Prohibition on Class Action Waivers

December 26, 2013

In a significant decision for employers, the U.S. Court of Appeals for the Fifth Circuit rejected the National Labor Relations Board’s 2012 D.R. Horton decision, in which the Board held that an arbitration agreement requiring employees to waive their rights to bring class or collective actions violated the National Labor Relations Act (NLRA).

Facts of the Case:  D.R. Horton, a national homebuilding company, required employees to sign a Mutual Arbitration Agreement that prohibited them from asserting class or collective claims.  Because such claims included those related to terms and conditions of employment, the Board found that the agreement therefore interfered with employees’ rights under Section 7 of the NLRA to engage in concerted activity for their mutual aid or protection.  D.R. Horton appealed the Board’s decision to the 5th Circuit.

The Court’s Decision.  Although the 5th Circuit noted that courts normally defer to the Board in interpreting its own statute - the NLRA - it went on to state that such deference is not accorded when the Board’s interpretation of the NLRA “potentially trench upon federal statutes and policies unrelated to the NLRA.”  The 5th Circuit then determined that the Board’s decision, effectively prohibiting class action waivers, was in conflict with the Federal Arbitration Act (FAA), which requires an arbitration agreement to be enforced according to its terms.  It further found that no congressional command to override the FAA exists in the NLRA, and that the NLRA, in fact, permits and requires arbitration.  The 5th Circuit also noted that the other federal appellate courts to have considered this issue (the 2nd, 8th and 9th) have likewise rejected the Board’s position in D.R. Horton, and have found arbitration agreements containing class waivers to be enforceable.

The 5th Circuit did agree with the Board that the language of D.R. Horton’s mandatory arbitration agreement could be understood to prohibit employees from filing unfair labor practice charges, which would be a violation of the NLRA.