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The D.R. Horton Saga Continues

The D.R. Horton Saga Continues: The Federal Arbitration Act, the National Labor Relations Act and Class Action Arbitrations. D. R. Horton, Inc. v. National Labor Relations Board, 737 F.3d 344 (5th Cir. 2013).
Read the case.

The Background. Home builder D.R. Horton required employees to sign a “Mutual Arbitration Agreement” (MAA) as a condition of employment. The MAA provided that all disputes and claims between Horton and its employees (including claims for wages, benefits and other compensation) would be determined by final and binding arbitration. In addition, the MAA provided that arbitrators would not “have the authority to consolidate the claims of other employees,” conduct an arbitration as a class action, or award relief to a group of employees in a single arbitration proceeding.

Several years later, a group of Horton employees became concerned that Horton had misclassified them as exempt employees in violation of the Fair Labor Standards Act. Horton argued that the MAA prohibited them from bringing these claims to arbitration as a group.

The NLRB Weighs In. An employee filed an unfair labor practices charge against Horton, alleging that Horton’s actions interfered with the employees’ rights to “engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as provided in Section 7 of the National Labor Relations Act (NLRA). The National Labor Relations Board (NLRB) agreed and, in January 2012, ordered Horton to rescind or revise the agreement to (i) clarify that employees were not prohibited from filing charges with the Board and (ii) eliminate the prohibition against resolving claims on a collective basis.

The Fifth Circuit (Mostly) Rules for Horton. In December 2013, the Fifth Circuit issued a lengthy opinion that largely ran in Horton’s favor. Key to the Fifth Circuit’s reasoning was Congress’ enactment of the Federal Arbitration Act for the purpose of “ensur[ing] the enforcement of arbitration according to their terms.” See D. R. Horton, Inc. v. NLRB, 737 F.3d 344, 360 (5th Cir. 2013), citing AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1748 (2011). Examining the relationship between the Federal Arbitration Act and the NLRA, the Court concluded that neither the text nor the legislative history of the NLRA “contains a congressional command against application of the [Federal Arbitration Act].” As a result, the Fifth Circuit upheld the prohibition against class arbitration contained in the MAA as an enforceable term of a valid arbitration agreement. The Fifth Circuit did agree with the NLRB’s order requiring Horton to change the terms of the MAA to clarify that employees were not precluded from filing administrative charges with the NLRB. In light of the Court’s decision to uphold the prohibition against class actions, this was a small and arguably pyrrhic victory for the affected employees.

The Takeaway. It seems unlikely that the Fifth Circuit will have the last word on the enforceability of prohibitions against class action arbitrations. While the D.R. Horton opinion points to similar outcomes in the Second, Eighth and Ninth Circuit courts, there is already some indication that other Circuits could produce different results. In January 2014, for example, the United States District Court for the Western District of Wisconsin declined to follow the Fifth Circuit’s lead, noting instead that the Seventh Circuit or the Supreme Court may very well take a different view. See Herrington v. Waterstone Mortg. Corp., 2014 U.S. Dist. LEXIS 9992, 2014 WL 291941 (W.D. Wisc. 2014)(declining to vacate prior decision that NLRA gives plaintiff the right to join other employees to her claims despite a provision in the arbitration agreement to the contrary). This remains an issue to be watched.