Arbitration Pact Barring Class Lawsuits Violates NLRA

Homebuilder D.R. Horton Inc. required its employees to sign an employment agreement that adjudicated legal claims by binding arbitration and waived any right to bring class-action claims.

The agreement was challenged after one of Horton’s superintendents, Michael Cuda, sought to initiate arbitration of a claim on behalf of all similarly situated superintendents nationwide, claiming that Horton had misclassified its superintendents as exempt from the overtime-pay requirements of the Fair Labor Standards Act notwithstanding the U.S. Supreme Court ruling last year in AT&T Mobility v. Concepcion that says federal law pre-empts state law for class-action lawsuits.

Cuda filed an unfair labor practice charge with the National Labor Relations Board, asserting that Horton violated the federal National Labor Relations Act by interfering with his legal right to join with other employees in filing a class-action lawsuit.

In a Jan. 3 decision, the NLRB ruled that “employers may not compel employees to waive their National Labor Relations Act right to collectively pursue litigation of employment claims in all forums, arbitral and judicial.” The AT&T Mobility ruling, the NLRB reasoned, was a case about consumer class actions, whereas the Horton case involves the workplace and substantive rights granted employees under the NLRA.

Moreover, employee rights under the NLRA include the right to collective action, which included the right to a consolidated arbitration or a class action. “So long as the employer leaves open a judicial forum for class and collective claims, employees’ NLRA rights are preserved without requiring the availability of classwide arbitration. Employers remain free to insist that arbitral proceedings be conducted on an individual basis.” D.R. Horton Inc. and Michael Cuda, Case No. 12-CA-25764, (Jan. 3, 2012).

IMPACT: Since many employers require agreements with the same restrictions as Horton’s, employers should anticipate further court and agency decisions on whether class-action claims may be brought before an arbitrator.

James E. Hall, Mark T. Kobata and Marty Denis are partners in the law firm of Barlow, Kobata & Denis, with offices in Los Angeles and Chicago. To comment email editors@workforce.com.

Workforce Management, February 2012, p. 8 — Subscribe Now!