5th Circuit to Decide Arbitration Agreement Controversy

By Kelly Cheung on May 20, 2013 | Last updated on March 21, 2019

An important decision will soon be made by the Court of Appeals for the Firth Circuit. This decision will affect employment arbitration agreements. It can potentially prevent employers from pursuing class action waivers from their employees within the arbitration context.

The Fifth Circuit will be deciding on the validity of class action waivers within arbitration agreements in an employment environment. This particular issue has experienced widespread rejection in different state and federal courts since the Board made its decision in January of 2012.

In the case, D.R. Horton, Inc. vs. National Labor Relations Board, the NLRB is opposed to arbitration agreements waiving employees' rights to class action arbitration against their employers. The NLRB, an independent federal agency used to enforce worker's rights, decided that the Federal Arbitration Act does not apply to agreements for employees covered by the National Labor Relations Act.

The National Labor Relations Act provides various basic rights to private sector employees such as utilizing trade unions, collective bargaining, and pursuing collective action. The Federal Arbitration Act allows for parties to contractually elect using private dispute resolution through arbitration instead of going to court.

The employer, D.R. Horton, believes that this is an example of overreaching authority by the Board in its decision. D.R. Horton argues that federal statute and a Supreme Court decision preempts the FAA from applying to employees under the National Labor Relations Act.

A decision in favor of D.R. Horton is supported by a U.S. Supreme Court case. D.R. Horton's position is that class action waivers can be included in arbitration agreements and points to a 2011 case, AT&T Mobility v. Concepcion. The Supreme Court's decision allows class action waivers to be valid in standard consumer arbitration agreements. The Court ruled that the FAA preempts state law. In this case, the NLRB decision was based on California law prohibiting such provisions as unconscionable under contract law.

The Supreme Court held that in order to be consistent with the federal statute and the purpose of arbitration, companies should be able to make arbitration agreements with their employees and limit arbitrations to be brought only in an individual capacity.

The two sides both want protections and freedoms. One the one side, employers would like to freely contract with their employees to go to arbitration to protect against unnecessary claims and expensive settlements. On the other, employees and the NLRB seek added protections, against what they perceive as, the more powerful companies.

Both sides have important interests in this controversy, but as the Court expressed in AT&T Mobility, "requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration." We shall see if the Fifth Circuit agrees in the coming weeks.

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