TBA Law Blog

Posted by: Christy Gibson on Jul 5, 2012

By Robert L. Arrington


In its first decision of 2012 – D.R. Horton, Inc. and Cuda – the National Labor Relations Board held that employers cannot require their employees to waive all their rights to seek judicial or arbitral relief as a class.   At issue in that case was D.R. Horton’s policy that (1) required employees to submit all employment disputes to an arbitrator, and (2) prohibited the arbitrator from granting relief on a class or collective basis.  Because employees were required to arbitrate disputes, and because the arbitrator could not hear class claims, these provisions effectively denied the employees the opportunity to seek relief as a class.

In a thirteen-page decision, the NLRB held that the opportunity to seek relief as a class is a right protected under Section 7 of the NLRA.  It held, therefore, that employers must allow their employees the opportunity to seek relief as a class in some forum, whether it be arbitral or judicial.

To reach this conclusion, the NLRB had to distinguish or otherwise address several authorities, including the Federal Arbitration Act, a 2010 Memorandum from the NLRB’s General Counsel, and the Supreme Court’s 2011 decision in the AT&T Mobility v. Concepcion case (which upheld a waiver of the right to pursue a class action).  Accordingly, the D.R. Horton case has been appealed and could be overturned. (Whether participation in a class or collective lawsuit is the type of “concerted action” protected by the NLRA is certainly open to debate.)

Recently, Board counsel filed a charge of unfair labor practice against 24 Hour Fitness, Inc., a California based company that operates a national chain of fitness centers. Like D.R. Horton, 24-Hour Fitness maintains an employee dispute resolution plan that requires employment claims to be arbitrated on an individual basis and waives class action participation. Unlike D.R. Horton, applicants at 24-Hour Fitness are permitted to opt out of the plan at time of hire. The Board nonetheless contends the plan is coercive and the right to opt out is illusory. The charge has not, as of this writing, been heard by an administrative law judge.

Until the courts have spoken, employers with dispute resolution plans that contain class action waivers must decide on a course of action. Their options appear to be as follows:

1.      Simply delete the class/collective action waiver. This may remove the D.R. Horton problem, but will mean that employees will be able to ask for class relief either in arbitration or court, with the plan being somewhat ambiguous on which they are supposed to do. An agreement to arbitrate is not automatically an agreement to arbitrate class claims. See Stolt-Nielsen, 130 S. Ct. 1758 (2010). This approach could expose the parties to litigation over whether class arbitration is permitted.

2.      Expressly provide for class arbitration in the plan. This also will satisfy the Labor Board, but will increase the employer’s exposure to arbitration costs, discussed below, because, in order to comply with other applicable law, the employer must pay almost all of the costs of arbitration.

3.      Expressly “carve out” an exception to arbitration for participation in class litigation. Again, this will satisfy the D.R. Horton ruling, but will also remove one of the benefits of dispute resolution plans. It also could encourage employees to file bogus class complaints in an effort to avoid arbitration.

4.      Do nothing until the courts have spoken to the issue. This leaves the employer exposed to a potential unfair labor practice charge under Section 8 of the NLRA.

Which option is best for a particular employer will vary from company to company. Most arbitration administrators, such as the American Arbitration Association (AAA), have separate rules and fee schedules for class arbitration. The AAA, for example, charges the employer $900.00 to administer an employment arbitration under an approved plan. If there is a class claim, this jumps to $3,350.00 for filing the claim and administering the case through determination of the arbitrability of the claim. Thereafter, the class action claim administration fees are charged on a sliding scale depending on the size of the claims, capping at $14,000.00 for claims up to $10 million. (For claims of over $10 million, the fees are considerably higher.) For employers with a relatively small number of employees and relatively low risk of a large class, the class arbitration cost exposure may be perfectly acceptable. Larger employers are presented with a more difficult choice.