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Short-Lived Victory? Labor Board Rules Class Action Waivers Unenforceable for Both Union and Non-Union Employees

After the U.S. Supreme Court decided in favor of class action waivers in AT&T Mobility LLC v. Concepcion on April 27, 2011, many employers considered adding these waivers to arbitration agreements with employees. Until recently, class action waivers were considered lawful under federal labor law. In a separate decision, however, the National Labor Relations Board (Board) reversed course and ruled that federal labor law prohibits class action waivers in arbitration agreements with employees. A class action waiver, coupled with an arbitration provision in an employment agreement, would require an employee to waive most rights to class litigation or class arbitration against his or her employer. For example, if enforceable, such a waiver would bar an employee from filing a collective action lawsuit against his or her employer for a wage and hour violation. For reasons like this, class action waivers are appealing to many employers. In Concepcion, a case in which AT&T sought to enforce class action waivers in wireless service agreements with its customers, the U.S. Supreme Court appeared inclined to rule that class action waivers would be enforceable in employment agreements. The Concepcion Court found these waivers enforceable in the consumer context, under the Federal Arbitration Act. Moreover, the General Counsel for the Board had also suggested in a Guideline Memorandum that properly drafted class action waivers with employees did not violate federal labor law. Despite these decisions, the Board recently departed from the General Counsel’s position and ruled, in D.R. Horton, Inc., that class action waivers are unenforceable under federal labor law. The Board reasoned that the National Labor Relations Act (Act) prohibits employers from interfering with employees’ rights to act together to improve their working conditions, i.e., employees’ right to engage in “protected concerted activity.” Because class action waivers prevent employees from joining together in lawsuits that challenge working conditions, the Board reasoned that class action waivers prohibit protected concerted activities. Accordingly, the Board ruled that D.R. Horton, Inc. violated the Act by maintaining arbitration agreements with employees that contained these class action waivers. Although the Board’s decision may be challenged on appeal, it calls into question whether class action waivers may be enforced against employees. For now, employers maintaining or considering class action waivers should follow the status of this case. If you have questions regarding arbitration agreements with employees, or the status of the Board’s decision in D.R. Horton, Inc., please contact Philip C. Eschels, William J. Kishman or Benjamin J. Lewis.  

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