Tag Archives: Horton

Federal Appeals Court Overrules NLRB: Employers Can Adopt Class Action Waivers Through Arbitration Agreements

Contributed by Jeffrey A. Risch

As previously reported, in January 2012 the National Labor Relations Board (NLRB) held that a nationwide home builder committed an unfair labor practice under the National Labor Relations Act (NLRA) by implementing a mandatory arbitration agreement that waived the rights of employees to participate in class or collective actions through court action.  See D.R. Horton Inc. and Michael Cuda, (357 NLRB 184).  In short, the NLRB held that employers may not compel employees to waive their right to collectively pursue litigation of employment related claims.  On December 3, 2013, the Fifth Circuit Court of Appeals rejected the NLRB’s finding and concluded that the NLRB “did not give proper weight to the Federal Arbitration Act (FAA).”

Michael Cuda, a superintendent for Horton, claimed that he and other similar superintendents for the company were prevented from pursuing a wage and hour class action/collective action under the Fair Labor Standards Act (FLSA); alleging that they were misclassified as exempt employees.  Horton required Cuda and other employees to execute an arbitration agreement whereby they individually agreed to forego class action relief of all types relating to any employee dispute.

The NLRB found that the mandatory arbitration procedure violated Section 8(a)(1) of the NLRA because it interfered with the statutory right of employees to engage in “protected concerted activity for their mutual benefit.”  However, according to the Court, an otherwise valid arbitration agreement (including those in the employment context) must be enforced in accordance with its terms under the FAA.   Additionally, the Court held that absent specific statutory language in the NLRA to override arbitration, an arbitration agreement entered into between two parties should be enforced.  The Court also pointed out that other federal circuits have likewise upheld arbitration agreements containing class action waivers.  See Richards v. Ernst & Young LLP, (9th Cir. 2013); Sutherland v. Ernst & Young LLP, (2d Cir. 2013); and Owen v. Bristol Care Inc., (8th Cir. 2013).

The Court, however, did note that the underlying arbitration agreement could reasonably be understood by employees as precluding them from filing unfair labor practice charges at the NLRB.  It therefore enforced the NLRB’s order that Horton revise the document to allow employees the ability to file administrative charges.

As we have consistently advised clients, an employer may legally compel arbitration (including those that contain class action waivers) through a properly drafted arbitration agreement; but it may not prohibit its employees from filing a charge with the NLRB.  Employers looking to implement or revise employment arbitration agreements should consult with experienced labor and employment law counsel.

A Second California Court Rejects the NLRB’s Holding in Horton and Enforces a Class Action Waiver

Contributed by Jill Cheskes

Several months ago, a California Court of Appeal upheld a class action waiver and compelled arbitration of an employee’s wage and hour claim following the Supreme Court’s AT&T Mobility case.  In doing so, the court rejected the NLRB’s determination in D.R. Horton Inc. that such a class action waiver violates the NLRA.  A second California appeals court has followed suit in Nelsen v. Legacy Partners Residential Inc.   

The court called the Horton ruling a novel interpretation of the NLRA and held that absent specific statutory language or clear legislative history of Congress’ intent, the NLRA would not override an arbitration agreement entered into between two parties – even one that included a class waiver. 

In this case, the plaintiff worked as a property manager for the employer and about a year after her employment ended, she filed a putative wage and hour class action against the employer under the California Labor Code as well as the California Unfair Competition Law and Business and Professions Code. After the court granted the employer’s motion to compel arbitration, the plaintiff appealed. 

The Court of Appeal rejected the argument that the agreement was unconscionable and violated California public policy.  The court found that the agreement precluded the plaintiff from filing a class action and also from pursuing class arbitration. 

In speaking of Horton and the NLRB’s holding that a class arbitration waiver violated the NLRA, the court declined to follow it “for a number of reasons.”  First, the court noted that only two board members had approved the decision.  Additionally, the court found that the NLRB stepped outside its “core expertise” when deciding on the interplay between class action litigation, the Federal Arbitration Act and the NLRA. Finally, the court found that the board offered no precedent to support its decision. 

Once again, while Horton may hold some precedential value for NLRB matters, the courts seem to have little regard for its reasoning or precedential value.