Many employers try hard to curtail employee claims against them, or at least to channel such claims away from the courts and into less costly forums. Some have done this by forcing employees to promise not to file a class action suit; others allow class actions, but require that they be resolved through arbitration.
The National Labor Relations Board’s recent case against D.R. Horton, a large Houston-based home builder, will require all employers, unionized or not, to rethink both of these strategies.
When it comes to policies aimed at reducing the risk of litigation, Horton’s was particularly strict. As a condition of employment, employees had to waive their right to file a class action lawsuit and agree to bring any claims against the company individually through arbitration. Things came to a head at Horton when a group of superintendents at the company wanted to challenge their classification as exempt employees under the Fair Labor Standards Act and found they had no legal channel to do so.
If the Horton ruling escaped your notice, you’re probably not alone. Indeed, the vast majority of cases the Board decides apply only to unionized workplaces — or where groups of employees wish to become unionized. Perhaps unbeknownst to most employers, however, the National Labor Relations Act, which the Board enforces, guarantees all employees the right to engage in concerted, i.e., group, activity. In the Board’s view, Horton’s policy prohibiting class actions interfered with this right.
And here is why the Board’s decision is so significant. While no employer wants to be at the losing end of an employee dispute, individual employee claims generally do not involve large sums of money. For that reason, individuals oftentimes are unable to find an attorney willing to take their case. (Needless to say, an employee without a lawyer usually lacks the expertise and time to bring the action himself.) By contrast, employees as a group may have a large monetary claim and thus will be able to find a good lawyer. The availability — or nonavailability — of class actions can make the difference between employees bringing a claim or not. The Board’s decision essentially ensures a door stays open to any group of employees that wants to file a class action employment suit.
What about the Federal Arbitration Act?
Savvy HR professionals — and many employment attorneys — are likely wondering why the Board’s decision doesn’t run counter to the Federal Arbitration Act, a law enacted to ensure that agreements requiring arbitration aren’t treated less favorably than others.
In the Board’s view, Horton’s policy of forbidding class litigation would be unlawful even if it contained no provision regarding arbitration; as the Board observed, the Supreme Court has held that even an agreement concerning arbitration cannot take away substantive rights (Gilmer v. Interstate-Johnson, 500 U.S. 20, 26). In the Board’s view, Horton’s requirement took away the substantive NLRA right of employees to engage in concerted activity.
It’s worth noting that the Supreme Court’s attitude toward arbitration is a bit unpredictable, as evidenced in its ruling last year in ATT v. Concepcion. That case dealt with a California rule that declared invalid any agreement requiring that claims be pursued only in individual arbitration. The Supreme Court held that such a state rule was preempted by the federal FAA. In distinguishing Horton from Concepcion, the Board noted that the California rule dealt with all disputes, including commercial disputes. But the Board’s ruling only addressed employment disputes between employees and their bosses.
While the implications of the Horton ruling are far-reaching, the Board was careful to limit its holding in certain respects. For example, the ruling made it clear that employers could still lawfully prohibit class action arbitration, so long as employees were free to pursue class actions in court. As to the reverse proposition, i.e., an agreement foreclosing class litigation in court but permitting class actions in arbitrations , the Board said that it was not resolving that “more difficult question.”
Life After Horton
Before lambasting the Board for being anti-business, employers should keep in mind just how restrictive Horton’s policy was. It had foreclosed all court litigation — class and individual— and all class arbitration. It was that blanket prohibition that the Board found particularly egregious. By “requiring employees to waive their right to collectively pursue employment-related claims in all forms, arbitral and judicial,” the Board ruled, Horton violated Sec. 8(a)(1) of the Act — the law’s central tenet guaranteeing concerted and union activity.
Horton will likely appeal the Board’s ruling in federal circuit court. However, the Board’s “win” rate in circuit courts traditionally has been very high. Thus, employers should think twice before enforcing policies that require enacted to ensure that agreements requiring arbitration aren’t treated less favorably than others.
Finally, employers may consider voluntary agreements by employees.
In any event, employers should consult counsel before insisting on, or reaching, any agreements concerning arbitration and class actions.
Harold Datz teaches employment and labor law at George Washington University Law School, Georgetown University Law School and at American University’s Washington College of Law. He served as chief counsel at the National Labor Relations Board from 1990-2008.
[Check back next week for additional commentary on this important case.]