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Policy: Law

Court rejects NLRB rule on arbitration and class action

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Beltway Confidential,Opinion,Sean Higgins,Labor,NLRB,Law

In a little-noticed opinion last month, the Fifth U.S. Circuit Court of Appeals threw out a National Labor Relations Board ruling that federal labor law trumps arbitration law. In other words, the court ruled that the NLRB's attempt to broaden the reach of the NLRA to circumvent recent Supreme Court decisions was unconstitutional.

The case involved a company, home-builder D.R. Horton, that had required employees to sign contracts saying they would seek arbitration for all disputes with the employer rather than going to court. The contract also said they could only seek arbitration individually, not as a group. Some employees challenged the clause, saying it was illegal under the National Labor Relations Act.

On Jan. 3, 2012, the NLRB agreed and ruled that D.R. Horton could not prevent employees from filing class action claims in court or in arbitration. The Fifth Circuit disagreed on Dec. 3, noting that the Supreme Court has long held that there is no "substantive right" to be able to file class actions. If an employee signs that right away, he or she signs it away.

Former NLRB member Craig Becker, now a top attorney with the AFL-CIO, has said the ruling "could spell the end of employment class actions." In a commentary for Politico, he wrote: "The decision permits employers to require workers, as a condition of keeping their jobs, to agree to arbitrate all workplace disputes and to do so as individuals, standing alone against their employer."

That court's decision doesn't appear to bear that interpretation though. While it found that the NLRA did not always trump arbitration, it also found that an employer cannot force a worker to give up the right to petition the NLRB. The legal news site Corporate Compliance Insights noted: "The court explained that an arbitration agreement violates the NLRA if it prohibits employees from filing charges because, unlike the use of class action procedures, the filing of a charge with the board is a substantive right." So while they may not be able to file a complaint collectively, they can do it individually.

Notably, the court also considered whether the NLRB had also lacked a valid quorum at the time of its decision, but ultimately said that was a matter for the Supreme Court. That's notable because Becker was one of the board members at the time of its action on D.R. Horton. He had been installed on it through a recess appointment by President Obama — despite the fact that the Senate was not in recess at the time. If the Supreme Court holds that Becker's appointment was unconstitutional — it is scheduled to hear the case Monday — that may retroactively negate much of what the NLRB did while Becker was part of it.

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