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NLRB Says Employers - Even Those With Non-Unionized Workforces - Cannot Require Non-Management Employees to Waive Their Rights to Proceed with Class, Collective, or Other Joint Claims Addressing Wages, Hours or Working Conditions

By Richard H. Block and Michael S. Arnold

In yet another controversial move, the National Labor Relations Board (NLRB) has ruled that employers violate the National Labor Relations Act (NLRA) when they require non-management employees, as condition of employment, to waive their rights to pursue class, collective or other joint claims regarding their wages, hours and working conditions in court and before an arbitrator. 

D.R. Horton (Horton), a nationwide home builder, required each of its employees, as a condition of employment, to execute an arbitration agreement whereby the employee agreed (1) to submit all employment-related claims to arbitration; and (2) that the arbitrator could not authorize any such claim to proceed on a classwide, collective or other joint basis.  As a result, Horton sought to prevent Michael Cuda, a superintendent at one of Horton’s properties, from commencing a collective arbitration whereby Cuda claimed that Horton misclassified him and other similarly situated employees as exempt from the protections of the Fair Labor Standards Act (FLSA).  Cuda countered by filing an unfair labor practice charge alleging, in part, that Horton violated the NLRA when it required him to sign the agreement prohibiting him from pursuing his claims collectively. 

Section 7 of the NLRA provides employees with the right to engage in concerted activity – that is, associate with others – for the purposes of collective bargaining or other mutual aid or protection.  Section 8 of the NLRA makes it an unfair labor practice for an employer to interfere with their employees’ Section 7 rights.  The NLRB concluded that employees engage in concerted activity for the purpose of mutual aid or protection when they join together to bring employment-related claims on a classwide or collective basis in court or before an arbitrator.  Thus, the NLRB found, Horton committed a Section 8 unfair labor practice when it required its employees to sign arbitration agreements that effectively prevented them from banding together to improve their wages, hours and working conditions – the right at the very core of the NLRA. 

The bigger issue addressed by the NLRB however, was whether the NLRA conflicted with another federal statute – the Federal Arbitration Act (FAA), and if so, whether the NLRB could accommodate both statutes.  The FAA requires, generally, that courts enforce arbitration agreements so long as they do not require the party to forgo any substantive rights.  The FAA gained a lot of attention last year after a series of opinions issued by the United States Supreme Court; namely, the AT&T v. Concepcion decision, in which the Supreme Court held that the FAA preempts state laws that prohibit class arbitration waivers. 

The NLRB held that the NLRA did not conflict with the FAA, and that, in any event, it could accommodate the two statutes.  First, the agreement violated the NLRA because it prevented class or collective relief generally; not because it did so in the context of arbitration.  Second, the FAA does not protect the agreement because its class/collective action waiver required employees to forgo their Section 7 substantive rights to engage in concerted activity.  Third, even if there was a conflict, at best, the NLRB could accommodate both statues because the NLRA would intrude on the policies underlying the FAA in a limited manner, and at worst, the NLRB was still permitted to conclude that the FAA would have to yield to the NLRA under the circumstance presented here.  The NLRB also distinguished Concepcion by noting that Concepcion neither involved employment agreements nor a waiver of NLRA rights, and because it involved a conflict between a federal and state law, not two federal laws. 

Here is what we are taking away from this decision:

  • First, while the decision remains good law for now, let’s see what happens next.  The President appoints the NLRB’s members and its law is therefore susceptible to the political winds.  If the President wins reelection, the NLRB will likely stand firm, but if there is a change in administrations, it would likely result in a reconstituted board in 2013 that could withdraw this decision entirely.  Of course, Horton will likely appeal and the courts may ultimately have their say. 
  • Second, employers must consider the decision’s reach.  Presumably aware of the criticism this decision would generate, the NLRB made sure to remind employers that (i) it does not extend to management employees, and (ii) they could still require non-management employees to arbitrate employment-related claims – but with the ability to pursue class or collective arbitrations.  But make no mistake, Horton fits with the NLRB’s current trend of expanding the reach of the NLRA to traditionally non-unionized workplaces.  Further, the NLRB left open the possibility that employers could legally require employees to waive their rights to pursue class/collective claims as long as they did not do so as a condition of employment.  Fair enough, but employers will be hard-pressed to come up with useful scenarios where the consideration it offers is something other than an offer of employment or continued employment. 
  • Third, even if the decision is ultimately vacated and even though it only applies to non-management employees, employers must be aware of another avenue of attack.  As we previously reported and as the NLRB cited to in a footnote, a New York Federal Court, in Raniere v. Citigroup, Inc., has found that an agreement barring a collective arbitration of FLSA claims is unenforceable as a matter of law.  This ruling, while being appealed, currently extends to all employees subject to FLSA.  Thus, to the extent this case remains good law, employers (operating at least in the Second Circuit) cannot require their employees to proceed on an individual basis exclusively, whether in court or arbitration. 
  • Fourth, this decision serves as a good time to remind employers of the NLRB’s Northeastern Land Services (NLS) decision, which the First Circuit affirmed on appeal last summer and which we wrote about here.  There, the NLRB found that a confidentiality provision included in an employment agreement prohibiting employees from discussing compensation and other terms of employment with “other parties,” violated the NLRA.  Like the arbitration agreements at issue in Horton, employers must be cognizant that any agreement restricting an employee’s right to engage in concerted activity for the purposes of collective bargaining or for other mutual aid or protection – even in non-unionized workplaces – may violate the NLRA. 
  • Fifth, in light of Horton and NLS all employers – even those without a unionized workforce – are well-served by having counsel carefully review their individual employment agreements to ensure that they do not violate the NLRA. 

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Martha Zackin