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The Board’s decision likely will be reviewed by an appellate court since the NLRA allows D.R. Horton to appeal Board decisions in the District of Columbia Circuit, or in any circuit where the unfair labor practice arose or where the company does business.  The decision is almost surely to be challenged on grounds that it is at odds with the United States Supreme Court’s decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), where the Court held that a California law prohibiting class action waivers in consumer arbitration agreements was preempted by the Federal Arbitration Act, meaning that class action waivers in consumer arbitration agreements may be enforceable.  The Board’s decision also is likely to be challenged based on the fact that it was issued by only two Board members, potentially in violation of the Supreme Court’s decision in New Process Steel v. NLRB.

In D. R. Horton, Inc., 357 NLRB No. 184 (January 3, 2012), a plurality of the Board held that D.R. Horton’s class/collective action waivers in its arbitration agreements - which employees were required to sign as a condition of employment - constituted an unfair labor practice under the National Labor Relations Act. 

This case started innocuously enough, as the charging party alleged that he was misclassified as an exempt employee under the FLSA, and initiated arbitration on behalf of himself and similarly situated employees.  After D.R. Horton asserted that arbitration of collective claims was prohibited under his arbitration agreement, the charging party brought a ULP charge against the company.  With only two members participating in the decision (as the third and only other Board member recused himself), the Board held that D.R. Horton engaged in an unfair labor practice by including waivers of class or collective claims in arbitration agreements that its employees were required to sign. 

The basis for the Board’s plurality opinion is Section 7 of the NLRA, which provides employees with the right “to engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .”  29 U.S.C. § 157.  “The Board has long held, with uniform judicial approval, that the NLRA protects employees’ ability to join together to pursue workplace grievances, including through litigation,” and “that concerted legal action addressing wages, hours or working conditions is protected by Section 7.”  Thus, D.R. Horton’s mandatory arbitration agreement, which precludes employees from pursuing class or collective claims in any forum (judicial or arbitral) “clearly and expressly bars employees from exercising substantive rights that have long been held protected by Section 7 of the NLRA,” and constitutes an unfair labor practice.

The Board’s decision expressly dealt with the Supreme Court’s ruling in Concepcion, distinguishing that case because it did not involve “the waiver of rights protected by the NLRA or even employment agreements.”  Likewise, the Board noted that Concepcion dealt with a conflict between California state law and federal law (the FAA), which implicated the Supremacy Clause, while the D.R. Horton case addressed alleged conflicts between two federal laws - the NLRA and FAA.  To the extent a conflict does exist between the two federal laws, the Board stated that the FAA would yield to the NLRA and its protections on the right to engage in concerted activity.

While the NLRB usually decides cases involving unionized workforces, this decision based on Section 7 of the NLRA would apply to union and nonunion employees, so long as the employer meets the jurisdictional requirements of the NLRA.

Even the Board’s ruling has some limitations, of which employers should be aware:

• The class waiver prohibition is limited to statutorily defined “employees” under the NLRA, meaning it does not apply to managerial employees or supervisors. 
• Employers may still insist that any arbitration proceedings be on an individual basis “[s]o long as the employer leaves open a judicial forum for class and collective claims.” 
• The Board does acknowledge that a union is still free to collectively bargain away its members’ ability to pursue class or collective claims, just as it may agree to arbitration provisions that waive other actions.  The key is that the union negotiates this, not an employer unilaterally imposing such waivers.

Could this be true?  After all, Concepcion wasn’t an FLSA or even an employment case.  Two consumers had attempted to bring a class action against a company for fraud and false advertising stemming from the purchase of phone services.  The Supreme Court had snuffed out the consumers’ class claims because they had signed arbitration agreements binding them to bringing actions only in their “individual capacity.”

Now, thanks to a pair of strippers and an operation called Cousin Vinnie’s Back Room, a result has arrived from the first test case since Concepcion of an employer using the class waiver in an arbitration agreement to defend against an FLSA collective action.  The news is good for employers.  In D’Antuono v. Service Road Corp., the federal district court in Connecticut halted a proposed FLSA collective action two months ago because the strippers had signed arbitration agreements containing class waivers.

It wasn’t a knockout blow for employers.  First, the court did not rely on the Concepcion reasoning, per se, to cut short the FLSA collective action.  Concepcion instead served as an influential alternative to the primary reasons.  (The primary reasons were that (a) Connecticut does not have a law rendering class waivers “unconscionable,” and (b) nothing about the class waiver prevented the strippers from vindicating their FLSA rights.)  Second, the court in June 2011 permitted an immediate appeal to the United States Court of Appeals for the Second Circuit (covering Connecticut, New York, and Vermont), so that court will have the final say for the strippers.

But the district court’s opinion is heartening.  The judge, Mark R. Kravtiz, is one of the nation’s most highly regarded, and his 56-page opinion is intellectually robust.  His language strongly suggests that deference to arbitration agreements -- as set forth in the Federal Arbitration Act and discussed in Concepcion -- preempts any argument that that class waivers should be unenforceable.  Among other nuggets, Judge Kravitz wrote:

[T]his Court reads the AT&T Mobility [v. Concepcion] decision as casting significant doubt on virtually any “device or formula” which might be a vehicle for “judicial hostility toward arbitration.”

Tough fights lay ahead as courts throughout the country will grapple with whether Concepcion means employers can exempt themselves from FLSA collective actions (and state wage-hour actions) through an arbitration agreement.  With the help of exotic dancers seeking more than the greenbacks in their garters, the first court to weigh in has come close to saying “yes.”

The case began when AT&T customers Vincent and Liza Concepcion purchased wireless phone service, which advertised the provision of free phones. The Concepcions were not charged for the phones, but they were charged approximately $30 in sales tax. In March 2006, the Concepcions filed a complaint against AT&T in the United States District Court for the Southern District of California. The complaint was later consolidated with a putative class action alleging that AT&T had engaged in false advertising and fraud by charging sales tax for the “free” phones.

The Concepcions’ contract with AT&T contained a standard arbitration provision, which required the Conceptions to pursue their claims against AT&T through arbitration in an individual capacity rather than through a lawsuit as a member of a putative class.  Accordingly, AT&T moved for arbitration in accordance with the contract, but the district court denied AT&T’s motion, relying on Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), a California Supreme Court decision that held class action waivers in certain consumer contracts were unenforceable as a matter of public policy. This California law was overturned by the Concepcion  ruling.

Writing for the Court, Justice Antonin Scalia said that permitting states to nullify arbitration agreements based on policy judgments frustrates the purpose of the FAA, which was enacted in 1925 “in response to widespread judicial hostility to arbitration agreements.” According to the Court, the FAA was designed to promote arbitration, under the belief that affording parties discretion to design their own arbitration processes − including limiting the availability of class arbitration − advances efficiency and streamlines the resolution of disputes.

While AT&T v. Concepcion was decided in the context of a consumer contract and not an employment agreement, employers should be aware that the ramifications of this case could extend to the employment sphere. Employers should examine their arbitration agreements to ensure that a class action waiver is included, as these types of provisions are more likely to be enforced in light of the Court’s decision.