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NLRB: Arbitration agreements can’t ban class-action lawsuits


The National Labor Relations Board (NLRB) has ruled employers may not require employees to sign arbitration agreements that ban workers from joining together to pursue employment-related legal claims in any forum, whether in arbitration or in court.  

The ruling effectively bans written agreements that require employees to pursue legal claims individually through arbitration. The NLRB said those arbitration agreements violate the National Labor Relations Act (NLRA).

Business groups and employment attorneys say the ruling will almost certainly spawn appeals in federal court.

The decision—dated Jan. 3 but not announced until Jan. 6—concerned an arbitration agreement that homebuilding company D.R. Horton required employees to sign. The agreement said employees waived their right to file employment-related class-action lawsuits and agreed to bring all claims to an arbitrator on an individual basis. The agreement prohibited the arbitrator from consolidating claims, fashioning a class or collective action or awarding relief to a group or class of employees.

The NLRB determined that the agreement unlawfully infringed on employees’ right to engage in “concerted activity” protected by the NLRA.  

The NLRB said it wasn’t completely banning arbitration agreement that mandated employees to settle disputes through arbitration. Instead, it said such agreements must give workers some way to make collective (or class) claims as a group—either in court or through arbitration.

Many employers favor arbitration agreements because they can help resolve workplace disputes without costly litigation. Arbitration agreements typically call for submitting disputes to an impartial arbitrator for final and binding resolution. When employees sign mandatory arbitration agreements, they agree to arbitrate employment-related disputes as a condition of employment. By signing such pacts, employees forfeit their right to sue the employer in federal or state court.

The 2-0 ruling was issued on the last day of NLRB Member Craig Becker’s term as a member of the board. Chairman Mark Pearce and Becker joined in finding the D.R. Horton agreement unlawful. Member Brian Hayes recused himself from the case. It came two days after President Obama’s controversial recess appointment of three new NLRB members, who will serve through January 2013. (Read more about the new NLRB members below.)

The NLRB has been notably active in the last few months, mostly issuing decisions that pleased organized labor and infuriated business groups.

In December 2011, it issued new rules that critics say will make for “quickie” elections that favor union organizers while placing employers at a disadvantage. The board last year also issued rules requiring employers to post a new pro-union notice advising employees of their right to form and join a union. Implementation of that rule has been pushed back to April 30, 2012, until a federal court can decide a lawsuit—filed by business groups—that challenges the new poster’s legality.