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An appellate court ruling that says employers can require their workers to sign arbitration agreements waiving their rights to class action suits is a significant victory for employers, say experts.
Tuesday's eagerly awaited ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in D.R. Horton Inc. v. National Labor Relations Board overturns a January 2012 ruling by two members of the National Labor Relations Board that held a mutual arbitration agreement required by the Fort Worth, Texas-based home builder violated the National Labor Relations Act.
In its 2-1 ruling, the appellate court said the board's decision “did not give proper weight to the Federal Arbitration Act,” a statute that provides for private dispute resolution through arbitration and limits courts' ability to set aside arbitration awards.
“Case law under the FAA points us in a different direction than the course taken by the Board,” said the court. “Neither the NLRB's statutory text, nor its legislative history contains a congressional command against application of the FAA.”
“The issue here is narrow: Do the rights of collective action embodied in (the NLRA) make it distinguishable from cases which hold that arbitration must be individual arbitration,” asked the court. The answer is “no,” said the ruling.
“We add that we are loathe to create a circuit split. Every one of our sister circuits to consider the issue have either suggested or expressly stated that they wouldn't defer to the NLRB's rationale, and held arbitration agreements containing class waivers enforcement.”
The court did uphold the part of the board ruling requiring Horton to clarify with its employees that the arbitration agreement did not eliminate their rights to pursue claims of unfair labor practices with the board.
An NLRB spokesman could not be reached for comment.
Commenting on the ruling, Jeffrey T. Johnson, a partner with law firm Holland & Hart L.L.P. in Denver, said the NLRB's ruling had been a “fundamental shift” and came as a surprise to most labor lawyers who felt the board “really stepped outside of its typical scope of dealing with union matters by saying even nonunion employers can't have class action waivers in their arbitration agreements because that violates the NLRB.”
“I think all of us were watching with great interest for this decision from the 5th Circuit” which is significant, Mr. Johnson said. Employers would like to have the option of including class action waivers in their arbitration agreements, and the 5th Circuit's ruling has now resolved employers' uncertainty surrounding this issue, which was created by the board's decision, he said.
“Employers don't like uncertainty. They want to know what the rules are so they can play by the rules,” said Mr. Johnson.
Daniel A. Schwartz, a partner with law firm Shipman & Goodwin L.L.P. in Hartford, Conn., said, “We've all been sort of waiting to see whether the NLRB's aggressive position in the Horton case would be upheld by a court, and the 5th Circuit flatly said that arbitration agreements should be upheld.
“The 5th Circuit was pretty clear that arbitration agreements are unaffected by the federal labor laws that are out there, and the court saw no reason not to uphold an otherwise valid arbitration agreement,” Mr. Schwartz said.
This case is particularly important, he said, “because the agreement at issue also had a class action waiver, and employers have been using those waivers with increasing frequency,” he said.
“What you now have is court after court that that has been upholding these provisions, and I think the NLRB is reaching the end of its rope on how far it can really go to overturn those agreements and waivers,” Mr. Schwartz said.