This month represents the first anniversary of the controversial decision by the National Labor Relations Board (NLRB) in D.R. Horton, Inc. In D.R. Horton, the NLRB ruled that D.R. Horton, a nationwide homebuilder, violated Section 8(a)(1) of the National Labor Relations Act (NLRA) by requiring employees to sign agreements that: 1) contained a mandatory arbitration provision; and 2) required them to bring all employment-related claims to an arbitrator on an individual basis, as opposed to as a potential class action.

Section 8(a)(1) of the NLRA makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in” the act. These rights include the right to “engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The NLRB in D.R. Horton ruled that the right to file a class or collective action over wages, hours, or working conditions either in court or before an arbitrator was included within the ambit of protected activities. Because the mandatory arbitration agreement used by D.R. Horton eliminated the rights of the employees to undertake such concerted activities, the NLRB found that use of the agreement violated the NLRA. 

The D.R. Horton decision was immediately met with considerable criticism, especially because it seemed to conflict with a previously decided U.S. Supreme Court decision, AT&T Mobility, LLC v. Concepcion (2011), which held that the Federal Arbitration Act preempted state laws prohibiting contracts from disallowing class-wide arbitration. 

Since the NLRB decided D.R. Horton, many federal district courts have struggled with how to interpret the decision, with almost all of them declining to follow the NLRB’s decision. The NLRB’s decision in D.R. Horton is currently on appeal to the Fifth Circuit Court of Appeals, and oral argument is scheduled before that court on February 5. In the meantime, however, the Eighth Circuit Court of Appeals earlier this month, in the case of Owen v. Bristol Care, Inc., No. 12-1719 (8th Cir. Jan. 7. 2013), became the first federal appellate court to weigh in on the effect of D.R. Horton — and it joined ranks with the myriad courts that rejected the NLRB’s interpretation. 

In Owen, the Eighth Circuit (which reviews cases from Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) reviewed a decision concerning a purported class action which alleged that the employer deliberately misclassified administrators as “exempt” in violation of the Fair Labor Standards Act. Like the employees in D.R. Horton, Sharon Owen had signed a mandatory arbitration agreement that contained a waiver of the right to proceed on a class-action basis with claims subject to the arbitration agreement. 

Although the district court refused to enforce the arbitration agreement on the basis of D.R. Horton, the Eighth Circuit panel, composed of three judges appointed by Republican presidents, unanimously reversed. The court found no inconsistency between either the text or history of the FLSA and the conclusion that arbitration agreements containing class waivers are enforceable in cases involving that statute. The panel held that D.R. Horton carried “little persuasive authority in the circumstances presented.” First, the court noted that the arbitration agreement at issue was different from the one in D.R. Horton, as it did not bar all concerted action. Second, the court found that it owed no deference to the NLRB’s determination, as the Board had no special competence of experience in interpreting the Federal Arbitration Act. Third, the court relied upon a series of court decisions upholding arbitration agreements containing class waivers in FLSA cases, and similarly noted that even though no other circuit court had addressed D.R. Horton, nearly all of the district courts to consider the decision have declined to follow it. 

In summarizing, the Eighth Circuit stated: 

Therefore, given the absence of any “contrary congressional command” from the FLSA that a right to engage in class actions overrides the mandate of the FAA in favor of arbitration, we reject Owen’s invitation to follow the NLRB’s rationale in D.R. Horton and join our fellow circuits that have held that arbitration agreements containing class waivers are enforceable in claims brought under the FLSA 

As no other circuits have ruled on the applicability of D.R. Horton, the issue remains in flux; however, if the Fifth Circuit takes a position similar to that of the Eighth Circuit, it appears D.R. Horton may not survive until its second anniversary. The issue of class-action waivers in mandatory arbitration agreements for employees is another issue on which the NLRB and the federal courts do not see eye-to-eye.  

For assistance in understanding the current state of the law, please contact: 

• Sean Beiter (716.566.5409; sbeiter@goldbergsegalla.com)
• Or any other member of the Goldberg Segalla Labor and Employment Practice Group