Employers Win In Arbitration Clause & Class Actions Fight

The Fifth Circuit Court of Appeals issued a decision Tuesday, December 3rd, affirming a company’s ability to require its employees to sign arbitration agreements that include provisions waiving the employee’s right to participate in class action lawsuits against the employer. The Court’s decision overturned a ruling by the National Labor Relations Board (NLRB) that home building company D.R. Horton, Inc. had violated workers’ rights when it required them to agree to resolve any employment claims against D.R. Horton through individual arbitration. The company’s arbitration clause also prohibited employees from making class action claims against D.R. Horton.

The NLRB’s underlying decision held that D.R. Horton’s mandatory arbitration agreement violated the National Labor Relations Act (NLRA) by requiring employees to waive their right to engage in concerted activity – namely by prohibiting them from jointly challenging company employment practices. Had it stood, the NLRB’s decision would have effectively eliminated employers’ ability to use arbitration to resolve employment disputes, in lieu of the costly alternative of litigation.

The court of appeals, however, has cleared the way for using arbitration in employment claims and for limiting costly class actions against employers. Nevertheless, employers should use caution, as the Court reinforced that certain arbitration clauses may violate the NLRA if the clause is seen as limiting an employee’s right to file an unfair labor practice charge. Employers should consult with counsel regarding their employment agreements and any arbitration language they wish to employ.

View the court documents for D.R. Horton v. National Labor Relations Board here.

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