NLRB ruling in D.R. Horton Protects Employees’ Rights to Class Actions

Construction company D.R. Horton, like many other companies, had their workers sign an arbitration agreement upon becoming employed, as a condition of their employment.  The signed agreement required the worker to waive his right to sue the employer in a court in the event that that employee wanted to resolve an employment dispute.  If the employee had a claim, he would have to bring it individually, and through the use of an arbitrator.  The agreement barred groups of employees from banding together to file class actions. 

The NLRB ruled that these agreements conflict with the National Labor Relations Act (NLRA), and that the NLRA precludes these arbitration agreements in all private sector workplaces, both union and nonunion.  The NLRA protects a workers’ right to engage in concerted activity – “the employees’ ability to join together to pursue workplace grievances, including through litigation,” according to the Board’s written decision. 

Critics admonish the Board’s decision as overly broad, and believe that the Board exaggerates the protections of the NLRA by guaranteeing every employee the right to pursue a class action.  Employers view the decision as a restriction of employer and management rights to compel arbitration of their employees who have disputes.  The Board, however, stresses in its decision that it has frequently held that workers may pursue their claims through collective action, and that the right to do so is firmly planted in the NLRA.

Opposers point out that the Federal Arbitration Act (FAA) grants employers the right to enforce private arbitration agreements related to employment, and was specifically upheld and underscored in the Supreme Court case AT&T Mobility v. Concepcion, decided recently in June 2011.  The Board’s decision in this case, however, pointed out that the FAA protects the right to arbitrate disputes only when “a party does not forego the substantive rights provided by the statute.” The NLRA grants a substantive right to participate in concerted activity.  Waiving this right would be unenforceable.

The decision is likely to be appealed.