NEW ORLEANS (Legal Newsline) -- The National Labor Relations Board has ruled that requiring employees to sign arbitration agreements that contain clauses prohibiting employees from pursuing class or collective actions is a violation of federal labor law.
The Jan. 3 ruling has been appealed to the U.S. Court of Appeals for the Fifth Circuit, New Orleans, La.
The NLRB stated that the agreement used by "nationwide homebuilder D.R. Horton, requiring employees to waive their right to a judicial forum and bring all claims to an arbitrator individually was unlawful." This prevented employees from engaging in "concerted activity" an activity protected by the National Labor Relations Act.
The agreement prohibited the arbitrator from consolidating claims, fashioning a class or collective action, or awarding relief to a group or class of employees -- also violations.
The NLRB says it found that the employees' rights in the NLRA were prohibited by Horton's contract and therefore invalid. But the NLRB did emphasize its ruling did not require class actions. It merely wanted an agreement making group claims available. The NLRB mandated that Horton rescind or revise its employee contract. It said the company needs to clarify to employees they are not waiving their right to pursue a class or collective action in all forums.
One of the issues mentioned by the NLRB in its ruling was that of the U.S. Supreme Court decision in the case of AT&T v. Concepcion. This landmark case has implications for the future of class action litigation.
Concepcion involved a California state law that contracts barring class actions were unconscionable. The USSC held that the Federal Arbitration Act preempted California's state law and permitted the clause in the AT&T contract to prohibit a class action. The USSC essentially interpreted the ability of the Federal Arbitration Act to preempt attempts by states to regulate arbitration.
But the NLRB said that the Concepcion case does not apply to them. Concepcion dealt with a state law being preempted by a federal law. The NLRB believes, as a federal entity, its rulings cannot be preempted by the FAA.
Some have concurred with NLRB because Concepcion is strictly a matter of a state law squaring with a federal law. The purpose of the FAA is to enforce arbitration. State laws that impose something inconsistent to arbitration will be preempted.
Andrew Pincus is a partner in the law firm of Mayer Brown, Washington, D.C. He argued the Concepcion case before the Supreme Court. He a great deal of experience in arbitration cases in appellate and trial courts.
He wrote recently in Bloomberg Law, "Does the Supreme Court's landmark decision in AT&T Mobility LLC v. Concepcion -- holding that arbitration clauses may not be invalidated on the ground that they contain class-action waivers =- apply only when the underlying cause of action is based on state law? That is what a panel of the Second Circuit concluded earlier this month in In re American Express Merchants' Litigation, a ruling that is the subject of a pending petition for rehearing en banc."
Pincus said that federal courts are upholding the validity of class action waivers. They have done so in more than forty cases.
Professor Hiro Aragaki of the Loyola University Law School, Los Angeles, believes that the Supreme Court erred in Concepcion. He said during an interview, "... the (in my view misguided) holding in Concepcion that class actions are fundamentally incompatible with arbitration makes it harder to claim that there is any less of an incompatibility when the source of the class action is federal rather than state law.
"But technically, there is a difference: when the conflict is with another federal statute, the conflict is not so clearly resolved in favor of the FAA. We also don't have that many precedents for determining how conflicts between the FAA and other federal laws should be resolved."
Christopher Drahozal, a professor at the University of Kansas Law School, said the Horton case is a federal-federal conflict rather than a federal-state conflict as is Concepcion.
"The case seems to turn on the definition of "concerted activity" under the NLRA," he said in an interview.
But as Pincus wrote about in the American Express case -- the Second Circuit panel's ruling will not be the last word.
"A review of its reasoning indicates why other courts are likely to disagree with its conclusion that Concepcion is irrelevant to the enforceability of a class waiver in the context of federal claims," he said.
Horton and many others wait to see if the NLRB ruling will be reversed by the Fifth Circuit Appeals Court -- and if it will be appealed to the Supreme Court.