January 11, 2012
Practice Group:
Labor and
Employment\
Time To Review Your Arbitration
Agreement: NLRB Attempts to Limit
Employer-Required Individual Arbitration
By Patrick M. Madden
On January 6, 2012, the National Labor Relations Board (“NLRB”) released a 2-0 decision in D.R.
Horton & Michael Cuda, Case 12-CA-25764 (dated Jan. 3, 2012), finding that homebuilder D.R.
Horton violated Section 8(a)(1) of the National Labor Relations Act (“NLRA”) by requiring its
employees, as a condition of employment, to sign a mandatory arbitration agreement that precluded
them from pursuing employment claims on a class, collective, or joint basis. That decision seemingly
conflicts with the U.S. Supreme Court's opinion in AT&T Mobility LLC v. Concepcion, 563 U.S. ___
(April 27, 2011), which held that the Federal Arbitration Act requires enforcement of mandatory
arbitration agreements that limit arbitration to the processing of individual claims. The D.R. Horton
decision is built on a number of controversial assumptions:
 that Section 7 of the NLRA, which protects the right of employees “to engage in … concerted
activities for the purpose of collective bargaining or other mutual aid or protection,” provides
employees with a substantive right to pursue federal or state employment claims on a class or
collective basis;
 that mandatory arbitration agreements that prohibit employees from pursuing class or collective
claims (in court or arbitration) interfere with the Section 7 rights of employees and, thus, violate
Section 8(a)(1);
 that the ability of employees to discuss individual claims, pool resources, solicit support, or engage
in other concerted activities does not excuse an employer’s unlawful interference with the right to
pursue class or collective claims;
 that there is no tension between the D.R. Horton decision and the Federal Arbitration Act (as
interpreted in Concepcion), and that any tension must be resolved in favor of protecting the right of
employees to engage in concerted activity; and
 that public policy favors handling employment disputes through class actions, and such matters are
usually small and do not implicate the public policy concerns in favor of simple and quick
individual arbitrations as identified in Concepcion.
The Board’s decision should be viewed exactly as it was intended: an attempt by a pro-employee
agency to help plaintiffs’ employment attorneys by creating legal ambiguity in the hopes of slowing
down the stream of post-Concepcion decisions staying or dismissing employment class actions and
requiring employees to arbitrate those claims on an individual basis.
Although the Board’s decision is certain to be subject to review and may not be enforced, the NLRB
will undoubtedly pursue similar enforcement actions while review is pending. Every employer that
has employee arbitration agreements should carefully review those provisions and consider whether to
modify them until the apparent tension between Concepcion and the D.R. Horton decision is resolved.
Time To Review Your Arbitration Agreement: NLRB
Attempts to Limit Employer-Required Individual Arbitration
Although any review should be conducted with counsel, a few issues that may be addressed in that
review include:
Whether the arbitration agreement clearly states that it does not prohibit
employees from filing charges with or seeking relief from agencies like the NLRB.
In a less controversial aspect of the D.R. Horton decision, the Board reemphasized its past holdings
that arbitration agreements violate Section 8(a)(1) if their language would lead employees reasonably
to believe that the employees are prohibited from filing unfair labor practice charges with the NLRB.
Ambiguous and overbroad language can result in such violations. Thus, any agreement should
expressly inform employees that the mandatory arbitration language does not cover agency complaints
or NLRB charges. Similarly, the agreement should include a generic statement excluding any claims
that cannot be subject to mandatory arbitration as a matter of law.
Whether the arbitration agreement is (or can be) optional rather than a “condition
of employment.”
The Board expressly limited the D.R. Horton decision to required arbitration provisions. If an
employee is given some incentive for entering an agreement or has the ability to opt out of the
agreement, then the Board’s decision does not apply. Moreover, at least one federal district court has
concluded that a class action waiver does not violate Section 8(a)(1) if it is included in a voluntary
enrollment agreement and the employer does not threaten to terminate employees who refuse to sign
it. Thus, if possible, employers should provide employees with an opportunity to opt out of any
arbitration agreement and include an express non-retaliation statement that employees who opt out
will not be subject to any adverse consequence. Few employees are likely to take advantage of this
option, but the opt-out provision will render D.R. Horton irrelevant.
Whether the arbitration agreement addresses the question of class and collective
actions and, if so, the scope of any class exclusion.
D.R. Horton’s arbitration provision stated that the arbitrator did not have authority to fashion a class
or collective action and prohibited any award to any group of employees. Although the D.R. Horton
decision did not address the issue, there may be a difference between a small group of employees who
each want to pursue a matter together and a class action where a single employee (without a Boardcertified election) wants to hold himself or herself out as the representative of hundreds or thousands
of other employees. Regardless, because arbitration is a matter of contract, the Supreme Court
recently found that an arbitrator does not have authority to use class procedures if an agreement is
silent about class or collective actions. Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. ___
(2010). Thus, employers should consider whether to make the agreement silent on class or collective
actions, especially if the agreement is a condition of employment.
Whether the arbitration agreement avoids issues of procedural and substantive
unconscionability.
The NLRB and Supreme Court agree that arbitration agreements can be challenged on the same bases
as other contracts. The risks of procedural unconscionability can be reduced if employees have time
to consider an agreement and consult with counsel; can negotiate over or modify certain terms; and
are allowed to opt out of the agreement. Similarly, the risks of substantive unconscionability can be
reduced if the agreement does not alter any substantive rights or forms of relief; both parties are
equally bound; the costs and location of the arbitration are similar to a court proceeding; and the
2
Time To Review Your Arbitration Agreement: NLRB
Attempts to Limit Employer-Required Individual Arbitration
arbitration rules are given to the employee and provide for a fair process. If any procedural or
substantive flaws are identified, they should be addressed promptly.
Although the D.R. Horton decision creates some confusion and legal ambiguity, careful review and
modification can assure that arbitration agreements remain enforceable with little risk until case law
further clarifies the issue.
Author:
Patrick M. Madden
patrick.madden@klgates.com
+1.206.370.6795
3