Board Finds Certain Mandatory Arbitration Clauses Violate Federal Labor Law

January 9, 2012

Employers will be blocked from requiring workers to sign arbitration agreements that prevent them from later pursuing a class action claim in court.

The National Labor Relations Board has ruled that it is a violation of federal labor law — the National Labor Relations Act— to require employees to sign arbitration agreements that prevent them from joining together to pursue employment-related legal claims in any forum, whether in arbitration or in court.

The ruling does not require employees to seek relief through class arbitration as long as the employment agreement allows employees to pursue their claims in court.

The decision examined one such agreement used by nationwide homebuilder D.R. Horton, under which employees waived their right to a judicial forum 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 board found that the Horton agreement unlawfully barred employees from engaging in “concerted activity” protected by the National Labor Relations Act.

The board emphasized that the ruling does not require class arbitration as long as the agreement leaves open a judicial forum for group claims.

Horton will now have to to rescind the agreement or revise it to make clear to employees that they are not waiving their right to pursue a class or collective action in all forums.

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