By Marshall B. Babson

In a case that directly affects the future of employment arbitration in the U.S. and the ability of U.S. employers to protect themselves against costly and often frivolous class action claims, briefs were filed this week by business groups, including an amicus brief that Seyfarth Shaw filed on behalf of the U.S. Chamber of Commerce, in the D.R. Horton appeal now pending in the U.S. Court of Appeals for the Fifth Circuit.

A two-Member NLRB ruled in December 2012 that employers who instituted mandatory arbitration agreements containing a class action waiver violated Sections 7 and 8(a)(1) of the NLRA by adopting such procedures as a condition of employment.  In other words, the NLRB viewed “concerted activity,” activity by two or more employees, as including lawsuits or claims in which class action procedures are invoked, whether or not the lawsuit was filed by several employees or by a single employee.  The Board rejected the longstanding view in the courts, including the U.S. Supreme Court, that class actions are merely procedural mechanisms that, where appropriate, allow for the aggregation of like or similar claims to resolve them all at once, rather than individually.  D.R. Horton appealed the Board’s decision to the Fifth Circuit this Spring, and filed its own brief last week.

The NLRB’s decision in D.R. Horton, if upheld, would have a devastating impact on the alternative dispute resolution mechanisms that many U.S. employers have adopted in recent years to avoid the costly and often time-consuming effects of mass class actions filed in court.  Numerous studies have shown that arbitration of employment disputes is timely, cost efficient and effective.  Large numbers of employees have been highly satisfied with an individual resolution of their claims in arbitration.  Most often it is the plaintiffs’ lawyers themselves, supported by several large unions hungry for new members, who have mounted attacks on employment arbitration and particularly on class action waivers simply because such waivers, if upheld, would deny them the millions of dollars in fees that they otherwise may collect in any large class action even where the employees collect little or nothing.

The case is particularly disturbing because it relies upon an overly broad and mechanistic reading of Section 7 that is supported neither by the language nor the legislative history of the NLRA.  Not only did the NLRB act outside of its authority in striking down class action waivers, it ignored or disregarded more than thirty-five years of Supreme Court jurisprudence under the Federal Arbitration Act (FAA), which has upheld such agreements to arbitrate “as written” including class action waivers.  Virtually every state or federal court to have been presented with the NLRB’s decision in D.R. Horton as a basis for striking down an arbitration agreement with a class action waiver has refused to follow it.  It remains for the Fifth Circuit, however, to tackle the NLRB’s decision directly and to examine the merits of the NLRB’s radical holding in light of the FAA and the important federal policy favoring the enforcement of agreements to arbitrate.  One hopes that the court of appeals promptly will dispatch D.R. Horton to the dustbin as unsupported by Section 7 of the NLRA and wholly inconsistent with federal arbitration policies.