Source: https://onlabor.org/an-explainer-on-d-r-horton-and-the-validity-of-class-waivers-in-mandatory-arbitration-agreements/
Timestamp: 2019-04-20 16:17:53+00:00

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On December 4, 2013, the Fifth Circuit issued its ruling in the hotly contested case of D.R. Horton, Inc. v. NLRB. In a 2-1 decision, the court overturned the National Labor Relations Board’s decision to invalidate mandatory arbitration agreements that include a class waiver.
Given the prevalence of mandatory arbitration agreements in employment contracts (one 2008 study printed in the University of Michigan’s Journal of Law Reform found that 92.9% of large public corporations utilize mandatory arbitration clauses in their employment contracts), this decision is likely to have far-reaching effects.
Below, you’ll find an overview of the Board’s decision in D.R. Horton and a chronology of subsequent developments pertaining to the case.
D.R. Horton concerned the permissibility, under the National Labor Relations Act, of class action waivers in mandatory arbitration agreements.
In January 2006, D.R. Horton began to require all of its new and current employees to sign a mandatory arbitration agreement as a condition of employment. The agreement included a class action waiver by which employees were required to agree, as a condition of employment, to waive their right to collectively pursue employment-related claims in either a judicial or arbitral forum.
On January 3, 2012, the Board issued a decision invalidating the agreement on the ground that workers have an unwaivable “right [under Section 7 of the NLRA] to collectively pursue employment-related claims.” The Board rejected D.R. Horton’s argument that the holding conflicted with the Federal Arbitration Act (FAA)’s mandate to grant arbitration agreements the same protection given to other contracts. According to the Board, its treatment of the arbitration agreement was consistent with its treatment of contracts generally. It would have invalidated any contract that impinged on parties’ substantive (as opposed to procedural) statutory rights under federal labor law. Because the Board found that the arbitration agreement conflicted with the NLRA, its decision to invalidate the agreement did not run afoul of the FAA.
Since the Board’s decision, four circuit courts and numerous federal district courts have weighed in on the issue, with the majority refusing to defer to the Board’s decision. The issue, however, is by no means settled. Of the more than 23 federal district courts to consider D.R. Horton, only four found it persuasive. The most recent of those cases was decided in February 2013. No circuit court has deferred to D.R. Horton.
The Ninth and Second Circuits also refused to defer to the Board’s decision, citing many of the same reasons offered by the Eighth Circuit in Owen. In Richards v. Ernst & Young, the Ninth Circuit declined to rely on D.R. Horton in part because “the only court of appeals, and the overwhelming majority of the district courts, to have considered the issue have determined that they should not defer to the NLRB’s decision in D.R. Horton because it conflicts with the explicit pronouncements of the Supreme Court concerning the policies undergirding the Federal Arbitration Act (FAA).” The Second Circuit, in Sutherland v. Ernst & Young, similarly echoed the Eighth Circuit’s rationale for rejecting D.R. Horton. But, the Second Circuit additionally expressed doubt about the continuing validity of D.R. Horton in light of the D.C.’s Circuit’s invalidation of President Obama’s recess appointments to the NLRB in Noel Canning v. NLRB.
To date, the Supreme Court has not weighed in on D.R. Horton, but some view the Supreme Court’s decisions in two cases involving commercial arbitration agreements, AT&T Mobility LLC v. Concepcion and American Express v. Italian Colors Restaurant, as indicative of the Court’s likely position.
In AT&T Mobility LLC v. Concepcion, a case decided before D.R. Horton, the Concepcions entered into a phone service contract with AT&T which contained a mandatory arbitration agreement with a class action waiver. After AT&T charged the Concepcions $30 in sales taxes for a phone it had advertised as free, the Concepcions sued for false advertising and fraud. Their case was subsequently consolidated with a class action, at which point AT&T moved to compel bilateral arbitration with the Concepcions pursuant to the mandatory arbitration agreement. The Concepcions argued that the class waiver provision was unconscionable and therefore unenforceable. However, the Supreme Court, rejecting this argument, upheld the class waiver. The Court wrote that state unconscionability doctrines that apply only to arbitrations are preempted by the FAA’s provision mandating enforcement of arbitration agreements “save upon such grounds as exist at law or in equity for the revocation of any contract.” The Court added that class arbitration is inconsistent with the FAA because the “switch from bilateral to class arbitration sacrifices the principal advantage[s] of arbitration” by making it more formal, more expensive, and slower.
Some have read this language to indicate that the Court would likely disagree with the Board’s analysis in D.R. Horton. However, the facts in Concepcion differ in significant ways from the facts in D.R. Horton, and these differences may well affect the Court’s analysis of the legal issues. As the Board noted in its decision in D.R. Horton, Concepcion dealt with a conflict between state law (California’s unconscionability doctrine) and federal law (the FAA). In such a case, state law clearly must yield to federal law. In D.R. Horton, by contrast, the conflict, to the extent that there is one, is between two federal laws (the FAA and the NLRA). This kind of case calls for a balancing of the federal policies in tension. The Supreme Court’s decision in Concepcion tells us nothing about how the Court would engage in such an analysis. This is particularly true because, as the Board observed, California’s unconscionability doctrine in Concepcion pertained to consumer contracts that could cover thousands of potential claimants. Disputes between employer and employee, on the other hand, are likely to involve many fewer claimants. As a result, all of the problems the Supreme Court identified in Concepcion regarding the formality, cost, and speed of class arbitrations would be diminished.
Although the Supreme Court did not address whether the NLRA evinces a “contrary congressional command,” at least one court (the Ninth Circuit) has concluded that it does not. At the very least, American Express raises substantial questions about the continuing validity of D.R. Horton. Nonetheless, there is some reason to doubt the effect of American Express. Like Concepcion, American Express addressed class action waivers in commercial contracts, not employment contracts. As such, the lynchpin of the Board’s decision – the substantive right to collective action conferred by the NLRA – was not challenged.
In spite of the largely negative reception to D.R. Horton among the circuit and district courts and the questions raised by Concepcion, Noel Canning, and American Express, the enforceability of class waivers in mandatory arbitration agreements is still very much contested. Many NLRB ALJs continue to invalidate class action waivers on the basis of D.R. Horton.
Because of the widespread discordance about the continuing validity of D.R. Horton, many commentators expect the issue to eventually go up to the Supreme Court. Stay tuned.

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