National Labor Relations Board Limits Employers' Ability to Enforce Arbitration Provisions

In a highly anticipated decision, the National Labor Relations Board last week ruled that an agreement which requires employees to waive their right to sue in a joint, class or collective action and instead pursue all claims individually through arbitration is unenforceable.

The decision, in the case of D.R. Horton, Inc. (NLRB Case No. 12-CA-25764), will broadly affect employer-mandated arbitration agreements—i.e., agreements to resolve all employment-related disputes via arbitration to the exclusion of judicial proceedings—in the private sector.  In reaching its result, the NLRB concluded that an employer's requirement that employees irrevocably waive their right, as a condition of employment, to institute or participate in a class action constitutes an unlawful restriction on an employee's right to engage in concerted activity protected by the National Labor Relations Act and is therefore deemed an unfair labor practice under that law.  This ruling, however, does not ban an agreement that requires the use of arbitration to settle an employment-related dispute so long as the agreement offers some method for employees to bring class and/or collective claims, either in arbitration or in court.

The Labor Board's decision applies to all non-management employees in the private-sector, including non-union employees in the financial services industry.  Until the Labor Board's decision is rejected (or modified) by a federal appellate court, employers may be prevented from enforcing, or even requiring employees to sign, arbitration agreements that preclude joint, class or collective claims.  As this decision constitutes a significant departure from current law, it is bound to spawn litigation and to embolden employee advocates to protect employees' rights.  Morrison Cohen will continue to advise of further developments related to this decision as and when they occur.

Employers who condition new or existing employees' continuing employment on their execution of a restrictive form of dispute resolution mechanism, which prohibits an employee from making claims against his/her employer except on an individual basis (whether pursuant to exclusive arbitration or otherwise) are encouraged to consult with counsel to determine whether any modifications to their dispute resolution programs are appropriate in light of the NLRB's most recent decision.

If you have any questions concerning this bulletin, please contact:

Jeffrey P. Englander                                    Evan S. Lupion
(212) 735-8720                                           (212) 735-8853
jenglander@morrisoncohen.com, or             elupion@morrisoncohen.com