On January 3, 2012, The National Labor Relations Board issued its decision in D.R. Horton, Inc. Case No. 12-CA-25764. This is a significant decision for all employers as it prohibits the use of class action waivers in employment arbitration agreements. Specifically, the Board held that arbitration agreements that contain provisions that prohibit employees from filing joint, class or collective claims addressing their wages, hours or other working conditions against their employer, in any forum, violate Section 8(a)(1) of the National Labor Relations Act (NLRA).

The arbitration provision at issue in D.R. Horton, Inc., required employees, as a condition of their employment, to agree that they would not pursue class or collective litigation of claims in any forum, arbitral or judicial. The Board found that the provision violated the Section 7 NLRA because it expressly prohibited employees from excising their right to engage in “concerted activities for the purpose of … mutual aid or protection …" The Board explained that courts and the Board have long held that Section 7 protects the rights of employees to bring legal action addressing their wages, hours, and working conditions, and that this right includes the right to bring employment-related claims on a class wide or collective basis. Notably, union and non-union employees alike are covered by the NLRA, and thus the Board’s ruling is applicable to virtually all employers.

The Board’s decision is surprising in light of the U.S. Supreme Court’s recent decision in AT &T Mobility v. Concepcion. In AT &T Mobility, the Supreme Court struck down a California law that prohibited class action waivers in arbitration agreements, holding that the Federal Arbitration Act (FAA) preempts state law. In its decision, the Board distinguished AT &T Mobility by stating that AT&T Mobility did not involve a right protected by the NLRA or even employment agreements. The Board further opined that AT&T Mobility involved a conflict between the FAA and state law, which is governed by the Supremacy Clause, and that the instant case involved two federal statutes. In addition, the Board held that its decision did not conflict with the FAA, and even if there was a direct conflict, “there are strong indications that the FAA would have to yield under the terms of the Norris-LaGurardia Act.”

Importantly, the Board’s decision does not ban employers from requiring that their employees arbitrate claims relating to employment, nor does the Board’s decision restrict the right of employers to insist that arbitral proceedings be conducted on an individual basis. However, employers must now be careful that any such agreements leaves open a way for employees to bring class or collective claims in either court or arbitration.

In light of the Board’s decision, employers should review all agreements with employees to ensure that they do not violate Section 7 of the NLRA. Attorneys in Gibbons Employment & Labor Law Department have extensive experience counseling employers regarding employment contracts and labor relations issues. If you have any questions regarding the impact that this decision may have on your business, please feel free to contact any of the attorneys in the Department.

Suzanne Herrmann Brock is an Associate in the Gibbons Employment & Labor Law Department.