Unnoticed except by employment lawyers, the United States Court of Appeals in New Orleans last month issued what might be the most important workers’ rights opinions in decades. The decision permits employers to require workers, as a condition of keeping their jobs, to agree to arbitrate all workplace disputes and to do so as individuals, standing alone against their employer. The ruling could spell the end of employment class actions that were instrumental to breaching the barriers of both race and sex discrimination after the passage of the 1964 Civil Rights Act and remain critical to enforcement of minimum wage and other labor standards laws.
The case involved D.R. Horton, a home-builder operating in 27 states with annual revenue over $6 billion. The company required all employees to sign an agreement providing that employment disputes would be resolved by binding arbitration and that the arbitrator “may hear only Employee’s individual claims.” When one employee tried to pursue a claim that D.R. Horton had misclassified an entire category of workers as exempt from the protection of federal overtime law, the company insisted that each worker had to file his or her own claim.
The employee sought relief from the National Labor Relations Board (NLRB), which held that the “agreement” to waive the right to join with co-workers in pursuing workplace claims violated federal labor law, which not only gives employees a right to form unions and engage in collective bargaining, but also to “engage in…concerted activities for the purpose of…other mutual aid or protection.” More than 30 years ago, the Supreme Court recognized that labor law protects employees when “they seek to improve their working conditions through resort to administrative and judicial forums.” After all, if employees have a right to strike together for higher wages, surely they can sue together to obtain the same result. And that is what the board held: Just as employers cannot require employees to “agree” not to join a union by signing what’s known as a “yellow dog contract,” neither can they require employees to “agree” not to file a class action.
The New Orleans Court of Appeals, by a 2-1 vote, reversed the board’s decision, concluding that employees’ longstanding labor-law right to act collectively was trumped by the Federal Arbitration Act (FAA), which was enacted in 1925 to require courts to enforce private parties’ lawful agreements to resolve disputes out of court. But the FAA does not say anything about class actions and does not require enforcement of arbitration agreements that violate another law, such as the National Labor Relations Act. The court’s holding was guided instead by recent Supreme Court decisions giving the FAA an expansive reading—for example, permitting AT&T Mobility to enforce an arbitration clause appearing in the fine print in its form contract with cell-phone users, precluding consumers from bringing a class action.
