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National Labor Relations Board Void Arbitration Agreement as Violating Federal Law


As attorneys who specialize in the area of employment class actions, we understand that the right of employees to file class actions against their employer is an important tool for employees to protect their rights in the workplace. A recent decision by the National Labor Relations Board (NLRB) has ensured employees that right.

In the case of D. R. Horton Inc. and Michael Cuda, the defendant, D. R. Horton Inc., was brought before the NLRB for requiring its employees, as a condition of employment, to sign a “Mutual Arbitration Agreement” (MAA). This agreement stated that all disputes regarding the employee’s employment with Horton were only to be dealt with in arbitration and that the arbitration could only deal with employee cases individually – class and collective actions in arbitration were not allowed and employee cases could not be consolidated.

The plaintiff, Michael Cuda was employed as a superintendent by Horton beginning in July 2005. In 2008, he filed an unfair labor practice charge against Horton and the General Counsel issued a complaint alleging that Horton had violated Section(a)(1) of the National Labor Relations Act (NLRA) by having the MAA provision which banned collective or class actions. The complaint also alleged that Horton had violated Section(a)(4) by requiring all disputes to be settled in arbitration and therefore denying employees access to the NLRB.

The purpose of enacting the NLRA was to address the inequality of bargaining power between employees and employers, where employers frequently have the upper hand, as they are larger and more organized as a corporation. Congress, in order to resolve that inequality, armed employees with the right to team up in order to pursue common issues in the workplace.

Horton argues that the MAA’s restriction on class or collective arbitration is phrased as a restriction on the authority of the arbitrator rather than a restriction on employees. The NLRB dismissed this argument as a technicality because, since the MAA requires disputes to be settled only in arbitration, the end result remains that there is no forum in which employees may pursue a class or collective claim.

Section 8(a)(1) of the Act makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in” Section 7. In evaluating whether an employer has violated Section 8(a)(1) by having such a mandatory arbitration policy, the Board has a test: The first consideration is whether the policy explicitly restricts activities protected by Section 7. If so, it is illegal. If the policy does not explicitly restrict protected activity, then the test depends on finding that 1) employees would reasonably interpret it to prohibit Section 7 activity; 2) the policy was created in response to union activity; or 3) the policy has been applied to restrict the exercise of Section 7 rights. Using this test, the Board finds that the MAA expressly restricts activity which is protected under Section 7 and cannot therefore be legal.

The principal argument made by Horton is that, if the Board were to find the restriction on class or collective actions unlawful under the NLRA, it would conflict with the Federal Arbitration Act (FAA) which was designed to protect arbitration proceedings. The Board found that, in this case, upholding the NLRA did not conflict with the FAA due to the fact that they had determined that the MAA is illegal, not because it requires arbitration rather than judicial proceedings, but because it bans class and collective actions which, under the NLRA, every employee has a right to.

Furthermore, the Supreme Court has already determined that, when two federal statutes conflict, the later statute must be followed because it is assumed to be implied that the later statue repealed inconsistent provisions in the earlier enacted statute. The NLRA was passed 7 years after the FAA, therefore the NLRA has precedence.

The Board found that Horton had violated both Section(a)(1) and Section(a)(4) of the NLRA. The Board ordered Horton to cease and desist all activity which violates the NLRA, to cancel or revise the MAA, and to post a notice, within easy sight of employees, explaining their rights as employees under the NLRA and the fact that the old MAA had been cancelled.

The attorneys at Chicago Overtime Law Center have decades of experience litigating wage and hour cases including overtime, vacation pay, meal breaks, and tips. Our offices are conveniently located in Oak Brook Terrace and Chicago, Illinois. Contact a Elgin or Joliet wage and hour attorney today at 312-869-4095 or fill out our online form.