NLRB Prohibits Arbitration Agreements Regarding Class Actions

Posted on January 10, 2012 by Tom Crane

The National Labor Relations Board has issued a ruling addressing employment agreements with arbitration provisions. The agreement in this decision prevented an employee from filing a class action.  See NLRB decision.  The case concerned an agreement used by the homebuilder, D.R. Horton which provided that employees had to bring employment claims to an individual arbitrator.  The employee could not file their claim as part of a class action.  The agreement prevented an employee from fling suit in court as part of a group or class action.  

The NLRB enforces the National Labor Relations Act, the 1930's era statute that protects workers who form unions.  The NLRA also allows workers to discuss terms and conditions of their job - whether they have a union or not.  This provision of the NLRA allows employees to engage in "concerted activity," meaning group activity regarding their jobs.  The Board found that the D.R. Horton agreement infringed on concerted activity.  The ruling does not require class arbitrations.  But, it does find that no agreement may foreclose the possibility of groups of employees seeking remedies in a judicial forum. 

For many years, federal courts have been trending toward affirming employment agreements requiring arbitration of claims.  This D.R. Horton decision is a rare setback for that trend.   

The NLRB is composed of members appointed by the President.  Consequently, it is not unusual for decisions to be changed dramatically when a new administration takes over.  When the administration changes, this decision may well change. 

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Binding Arbitration is Appealed to the Texas Supreme Court

Posted on October 7, 2010 by Tom Crane

 Employee handbooks are not enforceable.  They have not been enforceable since the early 1990's.  In the early 1990's, after a few court decisions, Texas employers realized they had to include a disclaimer in each handbook stating that the handbook is not a contract.  Employers wanted employe handbooks to not bind the employers.  Much of what makes a good handbook does not make for a good contract from the employer's perspective.  There were one or two cases in the late 1980's in which employees successfully argued that they had not been warned three times prior to termination, as required in the employee handbook.  So, their terminations were overturned.  Employers responded with clauses making the handbook not binding and not contractual. 

Then comes this movement to send disagreements to arbitration.  Employers thought arbitration would be cheaper and faster than lawsuits.  So, they sought to make arbitration the default forum for disagreements in the workplace.  But, how do you have a binding arbitration in an employee handbook that has a disclaimer?  That is, how does one make a non-binding handbook binding, sort of, sometimes, maybe?

Easy.  Include a phrase that sets the arbitration clause apart from the rest of the handbook, so that only the arbitration clause is binding.  This is what has lead to the Hatton v. D.R. Horton case.  See report.  The Texas Supreme Court has asked the parties to provide briefing on the issue, which usually means the court will consider the issue.  The Texas Supreme Court has been very supportive of large corporations and employers for many years.  And, the movement to take disagreements to arbitration, for everything from buying a car to workplace complaints is still strong.   So, the chances of success for the employee in Hatton v. D.R. Horton are slim indeed. 

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Supreme Court Rules in Favor of Employer on Arbitration Agreements

Posted on June 21, 2010 by Tom Crane

The US Supreme Court issued a ruling in Rent-A-Center West v. Jackson.  The Supremes have found that an arbitrator should resolve issues regarding the enforceability of an arbitration agreement, and not the courts.  See decision.  This is an unfortunate decision.  Simply based on policy grounds, arbitrators earn income by hearing arbitrations.  So, they have ample incentive to find every arbitration agreement enforceable, regardless of the circumstancess of the agreement.  

As the dissent points out, a challenge to the enforceability of the arbitration agreement under the facts in Rent-A-Center would be made by an arbitrator.  Not said is the fact that many arbitrators are not lawyers.  I cannot imagine how a non-lawyer would deal with issues regarding contract issues.  

Arbitration agreements have become very common in the work place.  Arbitrations have many pros and cons, but mostly cons where employees are concerned.  As Workplace Prof points out, the Federal Arbitration Act, passed in the 1940's, was never intended to apply to situations in which the arbitration agreement is not a true arms-length agreement.  See post.  The FAA is being applied to situations in which the parties do not have comparable bargaining power.  See Workplace Prof's description of a case in which bank customers alleged forgery of their signatures on a so-called agreement to arbitrate disputes with a bank.  Yet, the federal court still applied the FAA and ordered the bank customers to arbitration.  

It perverts contract law to force parties claiming fraud or forgery to subject themselves to a psuedo contract.  It is equally perverse to pretend that employers and employees can negotiate in good faith an agreement to arbitrate employment disputes.  

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