On January 3, 2012, the National Labor Relations Board (NLRB) ruled in D.R. Horton, Inc., that requiring employees, as a condition of employment, to sign an arbitration agreement prohibiting them from filing collective or class actions for employment-related claims violates the law.  The decision involved an overtime case brought by Michael Cuda against his employer, Florida-based home builder, D.R. Horton, Inc. (“Horton”).  Cuda claimed that Horton had misclassified a group of employees, including himself, as superintendents to shirk the overtime pay requirements under the Fair Labor Standards Act.  When Cuda tried to bring a class wide arbitration on the overtime pay issue, Horton objected citing its “mutual arbitration agreement” that prevented employees from pursuing work-related group or class action arbitrations.  Employees, including Cuda signed the agreement as a condition of employment.

Cuda filed an unfair labor practice charge with the NLRB, alleging that Horton violated the National Labor Relations Act (NLRA) by requiring its employees to sign the agreement.  The NLRA provides that employees have the right “to engage in…concerted activities for the purposes of collective bargaining or other mutual aid or protection” (see NLRB OKs Employee Bad-Mouthing on Social Media).  In a 2-0 decision, the NLRB agreed with Cuda.

The NLRB distinguished its ruling from the recent Supreme Court case, AT&T Mobility v. Concepcion, (2011), which held that pursuant to the Federal Arbitration Act (FAA) businesses could use “take it or leave it” form contracts to forbid consumers from joining together in a single arbitration.  The NLRB said that the FAA did not trump the NLRA, a law historically protecting workers’ right to unionize and engage in concerted action.

Although the NLRB decided the case under a different statute, the result differs from the holding in the Supreme Court’s AT&T Mobility v. Concepcion decision.  Employers who had hoped that an arbitration agreement could preclude employee collective or class actions will now face the argument that such agreements violate the NLRA and are void.  To be continued…(an appeal is likely).  It is also worth mentioning that if a Republican is elected President, he will appoint 3 members to the NLRB in 2013, who will likely withdraw this decision.