The National Labor Relations Board earlier this month ruled that mutual arbitration agreements signed as a condition of employment cannot bar employees who sign these agreements from taking collective action such as class action lawsuits to address job grievances.
The NLRB’s ruling came in response to an unfair labor practice charge filed against DR Horton, a nationwide home builder, by a former Horton employee. Michael Cuda said that Horton misclassified him and other workers as superintendents in order to avoid Fair Labor Standards Act protections such as paying them overtime.
When Cuda’s lawyer informed Horton that he would pursue a class remedy for Cuda and other Horton employees through arbitration, Horton replied that such class remedies were prohibited by the mutual arbitration agreement that Cuda signed. Cuda’s attorney then filed an unfair labor complaint with the NLRB.
Alex Colvin, a professor who teaches at the Cornell School of Labor and Industrial Relations told Steven Greenhouse of the New York Times that these agreements that mandate arbitration to settle grievances or other work related issues are widespread and that the board’s ruling should have a major impact.
“This (ruling) would suggest that many of (the mutual arbitration) agreements)violate labor law by barring class actions,” Colvin told Greenhouse. “I also think the business community will be up in arms because you have federal labor law being applied in a nonunion setting.”
Cuda’s attorney filed the unfair labor charge in 2008. The NLRB general counsel subsequently filed a complaint against Horton. The NLRB’s ruling was a response to that complaint.
According to a statement released by the NLRB, “The Board found that (Horton’s mutual arbitration) agreement unlawfully barred employees from engaging in ‘concerted activity’ protected by the National Labor Relations Act.”
The NLRB in its ruling said that Horton’s mutual arbitration agreement (MAA), “requires employees, as a condition of their employment, to refrain from bringing collective or class claims in any forum: in court, because the MAA waives their right to a judicial forum; in arbitration, because the MAA provides that the arbitrator cannot consolidate claims or award collective relief.
“The MAA thus clearly and expressly bars employees from exercising substantive rights that have long been held protected by Section 7 of the (National Labor Relations Act),” concludes the NLRB.
In its ruling the NLRB did not say that mutual arbitration agreements were illegal, only that they must include language that allows for collective action.
Business groups that filed amicus briefs to support Horton argued that the Federal Arbitration Act allows such prohibitions of class actions when two parties agree to an arbitration process for resolving grievances and that the US Supreme Court has upheld the validity of these prohibitions.
The NLRB, however, said that the Supreme Court ruling was made in a case that did not involve labor law and that in matters concerning labor law, the Federal Arbitration Act does not supersede the National Labor Relations Act.
Because of the wide-ranging impact that the NLRB’s ruling could have, a federal court appeal is likely.