In the much anticipated ruling in D.R. Horton, Inc. and Michael Cuda.pdf, released Friday, January 6, the National Labor Relations Board (“NLRB”) held that the Company violated Section 8(a)(1) of the National Labor Relations Act (“NLRA”) by “requiring employees to waive their right to collectively pursue employment-related claims in all forums, arbitral and judicial.” The decision, which will have a far-reaching impact on all employers, also concluded that recent United States Supreme Court rulings on the Federal Arbitration Act and class arbitration were not implicated. To many management observers, the ruling elevates a procedural device, a class or aggregate proceeding, to the status of an individual statutory right applicable to any employment claim. The decision reasoned:

“an individual who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7.”

The Company and the Arbitration Agreement

The Company, D.R. Horton, Inc., builds homes and operates in more than 20 states. Starting in 2006, the Company required employees to sign a Mutual Arbitration Agreement (“MAA”) that essentially provided that all employment-related disputes be resolved through individual arbitration. The Charging Party Michael Cuda worked for the Company as a superintendent and had signed the MAA. His attorney later informed the Company that it was misclassifying superintendents as “exempt” under the Fair Labor Standards Act and that he had been retained to represent Cuda and a nationwide class of superintendents. Cuda’s attorney also attempted to give notice of intent to arbitrate on a class or collective basis. When the Company resisted, Cuda filed an unfair labor practice charge with the NLRB.

A Necessary Substantive Right?

Several groups that filed Amici Curiae briefs with the NLRB urged that employees’ Section 7 rights were not impacted because they could jointly discuss their claims, pool their resources to hire a lawyer, seek litigation advice and support from a union, seek support from other employees and coordinate the filing of claims. The Board majority was unpersuaded, responding,

“if the Act makes it unlawful for employers to require employees to waive their right to engage in one form of activity it is no defense that employees remain able to engage in other concerted activities.”

The decision also categorically rejected arguments that the right to bring a class or collective action was “procedural” rather than substantive.

“Any contention that the Section 7 right to bring a class or collective action is merely ‘procedural’ must fail.”

According to the decision, the salient issue is:

“Whether [the Company] may lawfully condition employment on employees’ waiving their right under the NLRA to take the collective action inherent in seeking class certification . . . .. Rule 23 may be a procedural rule but the Section 7 right to act concertedly by invoking Rule 23 . . . or other legal procedures is not” (emphasis added).

Supreme Court Precedent Found Not Implicated

The ruling also found that the U.S. Supreme Court’s opinions in Stolt-Nielsen v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), and AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011) (discussed in detail in other blog articles here and here) were not implicated. The Board majority reasoned that “[n]either involved the waiver of rights protected by the NLRA or even employment agreements.” AT&T Mobility (which arose in a consumer context) was distinguished by the majority because it involved a conflict between the Federal Arbitrator Act (“FAA”) and state law not where two federal statutes potentially conflict. The FAA did not preempt the NLRA which gave employees a federally protected right to engage in concerted action. And, the Cuda decision emphasized it did not require class arbitration to protect employees’ rights under the NLRA. Instead, it held “only that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial.

Impact and Next Steps

The decision was completed last Tuesday and signed by the two Democratic Board members, before one, Craig Becker, had his recess appointment expire. The Board’s sole Republican member, Brian Hayes, recused himself, without explanation.

The decision, which applies both to union and non-union workforces, will undoubtedly be appealed to a federal court of appeal.

The Bottom Line: The controversial NLRB has created another potential obstacle to the enforcement of class action waivers. A federal appellate court or the Supreme Court will likely resolve these important issues.