Last week the U.S. Court of Appeals for the Fifth Circuit delivered welcome news to employers and practitioners of labor and employment law. After years of heated debate regarding whether employers are permitted to use bilateral arbitration to resolve employment disputes, the Fifth Circuit answered with a resounding “yes.” In D.R. Horton, Inc. v. NLRB, No. 12-60031 (5th Cir. Dec. 3, 2013), the Fifth Circuit reversed the National Labor Relations Board’s (“NLRB”) 2012 ruling and held that employers and employees are permitted to resolve disputes through individual rather than class or collective arbitration.
Laying The Groundwork – The NLRB’s Decision
As we wrote about here last year for Washington Legal Foundation, in this case, a former employee of D.R. Horton filed an unfair labor practice charge with the NLRB, alleging that a class action waiver contained in his arbitration agreement with D.R. Horton violates the NLRA. Based on the employee charge, the NLRB’s General Counsel issued a complaint alleging that D.R Horton’s arbitration agreement violated Section 8(a)(1) of the NLRA by infringing the right of D.R. Horton’s employees to exercise their rights under Section 7 of the NLRA, which provides that employees may “engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
In a two-member majority of the three-member Board, the NLRB held that because the arbitration agreement directly infringes on the substantive Section 7 rights of D.R. Horton’s employees, it necessarily fails. The Board rejected the suggestion that Section 7 rights are procedural and not substantive. The Board drew a critical distinction between the process of certifying a class of employees (which it conceded is procedural in nature) and the “collective action inherent in seeking class certification,” which it held is a substantive right under Section 7. Continue reading