'Waiving' Goodbye to Class-Action Suits

A federal appeals court recently ruled against the National Labor Relations Board, saying employers can prevent class- and collective-action lawsuits by instituting an arbitration agreement with a class-action waiver. But will it take a Supreme Court decision to force the NLRB to change its official stance on such waivers?

Thursday, December 12, 2013
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When a National Labor Relations Board ruling that stated class-action waivers interfere with employees' rights under the National Labor Relations Act was recently overturned by the Fifth Circuit Court of Appeals, it marked a victory for employers. 

Ron Chapman, of Ogletree, Deakins, Nash, Smoak and Stewart in Dallas, was lead attorney on the case that now gives employers the means to resist a growing legal threat from groups of disgruntled workers.

"There has been an explosion of class and collective action lawsuits against employers over the past dozen years," Chapman says, adding that risks associated with those cases are so astronomically high that companies are forced to settle them even if they're without merit.

"I call this judicial blackmail," says Chapman. "The courts have now blessed the use of class action waivers as a procedural defense against judicial blackmail."

D.R. Horton v. the National Labor Relations Board began when an individual employee who signed a "mutual arbitration agreement" with homebuilder D.R. Horton then filed a demand seeking a collective action. Horton took the position that the arbitration agreement prevented any class or collective action, but this resulted in the employee filing an unfair labor practice charge with the NLRB.

"The underlying dispute with the individual was settled long ago, but in 2012, the NLRB found that class action waivers are unlawful," says Chapman. "Since then, every appellate court has rejected the NLRB's decision."

He notes that the NLRB will likely ignore the ruling in circuits other than the fifth. "Nevertheless, the clear trend in law is that class action waivers are permitted in arbitration agreements."

According to Gregory King, director of the NLRB Office of Public Affairs in Washington, "The NLRB is reviewing the court's decision to determine what steps to take. That's all we're actually saying about D.R. Horton."

At a minimum, every employer needs to consider adopting an arbitration agreement that contains a class action waiver, Chapman says, adding that employers who already have an arbitration agreement need to make sure it complies with the nuances set forth in the D.R. Horton case, and that employees must be clear on the fact that they aren't prevented from making complaints to local, state or federal agencies.

Employment attorney Jim Evans, with Alston & Bird's Los Angeles office, agrees, noting, "A well-drafted arbitration policy will put the employer and employee together early, before a dispute ever blows up into a conflict. But if it does, arbitration gives a speedy remedy," he says. "Arbitration agreements and class-action waivers that have the hallmarks of fairness and don't deprive the employee of any substantive rights are generally going to be enforced by the court."

However, class-action waivers will still probably be seen as illegal in the eyes of the NLRB.

"I think it's important for employers to know that this is not the end," says Julie Capell, a labor and employment partner in Winston and Strawn's Los Angeles office. "This is a good victory, but it's likely the NLRB is going to completely ignore this ruling, because the NLRB follows the doctrine of non-acquiescence. The only time they will follow something a federal court says is if the U.S. Supreme Court says it. We really can't rest easy until the U.S. Supreme Court follows what the Fifth Circuit and other circuits have said."

The current composition of the U.S. Supreme Court is extremely favorable to waivers, says Capell. "For this reason, I think the NLRB may try to delay getting this issue before the Supreme Court. I would advise any employer to consult with legal counsel based on the D.R. Horton ruling."

However, the Fifth Circuit ruling does give employers the means to protect themselves. "It doesn't take away the employee's right to seek redress on their own," says Capell. "They still have an avenue to seek justice; they just can't seek class action."

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Plaintiff's attorney Bob Goodman, of Kilgore and Kilgore in Dallas, cautions employers that arbitration agreements with class-action waivers could make resolution of large-scale problems more difficult by handling them one at a time.

"Think twice about forcing class-action waivers," he says, "because they inhibit dealing with big problems on a big-problem basis. They could add to the cost of defending against multiple claims, which can come back and bite employers."

Michael Avakian, vice president of the Washington-based Center on National Labor Policy Inc., acknowledges that class-action suits often have a ripple effect.  

"Class actions generate the extraordinary potential to destroy an employer," he says. "Employers almost have to settle, because their insurance companies cannot pay this type of extortion. These lawsuits can affect communities; the tax base, peoples' lives and expectations. Why should employers not be able to protect themselves? The constitution provides for the right of contract."

He also advises HR leaders to put the waiver in their employment applications.

"Specify it in writing, in bold, on the employment application, so there's no misunderstanding," he says. "Arbitration is a preferred method of settling disputes. If you don't like it, don't sign on to it and don't take the job. It's as simple as that."







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