Home > Regions > North America > Mandatory Employee Arbitration Agreements: The NLRB Throws a Wrench into Their Enforceability

Mandatory Employee Arbitration Agreements: The NLRB Throws a Wrench into Their Enforceability

By:  Forrest G. Read, IV

Arbitration agreements can be an effective way for employers in the hospitality industry to streamline and isolate an employee’s potential claims on an individual basis and protect themselves from a proliferation of lawsuits with many plaintiffs or claimants. But the National Labor Relations Board’s (“Board”) January 6, 2012 decision in D.R. Horton, Inc. and Michael Cuda, notably finalized by two Board Members on departing Member Craig Becker’s final day, has caused significant confusion as to how employers can enforce such arbitration agreements with their employees over employment claims, including wage and hour disputes. 

In D.R. Horton, the Board concluded that an employer commits an unfair labor practice under the National Labor Relations Act (“NLRA”) when it requires, as a condition of employment, its employees to sign an arbitration agreement that precludes them from filing, in any forum, any class or collective claims addressing their wages, hours or other working conditions against the employer. However, the Board’s decision in D.R. Horton appears to be inconsistent with, if not directly contradicts, a recent U.S. Supreme Court decision upholding the validity of class action waiver provisions in consumer arbitration agreements under the Federal Arbitration Act, which many employers and members of the labor and employment bar interpreted as extending to waiver provisions in employment-related agreements.

Notwithstanding the Supreme Court’s unmistakable and consistent pro-arbitration stance, the Board in D.R. Horton directly concluded that Supreme Court precedent regarding arbitration agreements did not apply to the employment context.  The Board’s decision is controversial because it was issued by two Members leaving employers left to question its validity and confused as to which precedent to follow.  In addition, it represents another example of the Board’s willingness to insert itself into matters outside the traditional unionized workplace and find NLRA violations outside the labor-management realm.

D.R. Horton is also controversial because it places courts at an intersection of whether to follow and apply Board or Supreme Court precedent.  Indeed, since the Board’s ruling in D.R. Horton, at least one court in New York weighed in on the issue and, in following Supreme Court precedent, tentatively ruled that D.R. Horton does not apply in the wage-hour context where the employee had voluntarily entered into an arbitration agreement not as a condition of employment. But the court noted that D.R. Horton may have applied and led to a different conclusion if the argument had been made that the arbitration agreement had been presented to the employee in a confusing fashion or had operated through compulsion by the employer (even if presented voluntarily).

In short, the question of whether employment-related arbitration agreements are enforceable will remain a murky one until D.R. Horton, currently a hindrance to hospitality employers that seek to compel individual arbitration of wage and hour claims with their employees, is appealed and decided upon by an appellate court. In the meantime, employers should be cautious about the application of such agreements. Any current arbitration agreements (particularly those that include class action waivers) should be reviewed for enforceability, and perhaps suspended depending on how the waiver provisions were worded and the circumstances under which they were agreed to. In addition, hospitality employers should carefully consider whether and how to present new arbitration agreements to employees and scrutinize the agreement’s waiver provisions before they are executed.