In a 2-0 vote, the National Labor Relations Board (“NLRB”) ruled that it was a violation of the National Labor Relations Act (“NLRA”) to require employees to sign mandatory arbitration agreements that did not allow employees to file joint, class or collective claims regarding wages, hours, or any working conditions against the employer before an arbitrator or court. The NLRB held that the agreement used by D.R. Horton, a national home construction company, unlawfully restricted the employees’ exercise of their Section 7 rights to engage in concerted activities for mutual aid or protection. D.R. Horton and Michael Cuda, Case 12-CA-25764 (Jan. 3, 2012).

The NLRB interpreted D.R. Horton’s “Mutual Arbitration Agreement” (“MAA”) as requiring employees and the company to waive their respective claims to be heard by a judge or jury, and instead agree to file all claims to an arbitrator on an individual basis. The MAA also prohibited an arbitrator from consolidating claims into a class or collective action. When an employee attempted to initiate an arbitration of a collective action under the Fair Labor Standards Act, D.R. Horton argued that the MAA barred the collective claim. The employee filed an unfair labor practice charge against D.R. Horton, claiming a violation of the NLRA.

Section 7 of the NLRA protects the rights of nonsupervisory employees to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The NLRB’s decision noted that it has consistently held that concerted legal claims regarding wages, hours, or working conditions are protected by Section 7. The NLRB also held that the collective pursuit of a workplace grievance in arbitration is also protected by the NLRA. The NLRB’s ruling lets employers use similar agreements as long as the agreement allows employees to use a judicial forum for class or collective claims if employers “insist that arbitral proceedings be conducted on an individual basis.”

The NLRB’s decision is very likely to be appealed to the U.S. Court of Appeals on several grounds. For example, the U.S. Supreme Court recently decided that the NLRB needs a quorum of three members to rule on a case. The NLRB also has a tradition of establishing a precedent with at least three NLRB members voting. However, until the possible appeal is resolved by the Court of Appeals, employers need to consider the risk of creating/maintaining mandatory class action waiver agreements for nonsupervisory employees that are similar to the one used by D.R. Horton.

If you have any questions regarding this decision, be sure to contact your employment counsel at Smith, Gambrell & Russell, LLP.