The National Labor Relations Board ruled on Friday that employers could not prevent workers from filing work-related group or class actions, essentially banning employment agreements at many companies that require workers to pursue all claims individually through arbitration.
In a decision that will no doubt anger many companies, the labor board concluded that a federal law protecting workers’ right to engage in concerted action trumps any arbitration agreement that bars them from bringing group claims. The ruling applies to nonmanagement private sector workers, union and nonunion, from low-wage restaurant workers to well-paid employees on Wall Street.
The ruling examined an agreement used by a nationwide homebuilding company, D. R. Horton, in which workers were required to waive their right to sue in court and instead bring all claims to an arbitrator on an individual basis. The agreement prohibited the arbitrator from consolidating claims, allowing a class or collective action or awarding relief to a group or class of employees.
The labor board ordered Horton to rescind the agreement or change it to make clear to employees that they were not waiving their right to pursue collective action.
”This is a big deal,” said Professor Alex Colvin, an expert on mandatory arbitration agreements who teaches at the Cornell School of Industrial and Labor Relations. ”Mandatory arbitration agreements are so widespread, and this would suggest that many of them violate labor law by barring class actions. I also think the business community will be up in arms because you have federal labor law being applied in a nonunion setting.”
Mr. Colvin said more than 25 percent of nonunion workers had signed an agreement as a condition of employment in which they promised to take any employment dispute to arbitration, rather than to a judicial forum.
In amicus briefs, the Labor Department and the Equal Employment Opportunity Commission supported the workers’ position.
But the United States Chamber of Commerce and other business groups argued in opposing briefs that the labor board should defer to a Supreme Court decision issued last April involving consumers who had sued AT&T Mobility for fraud. In that case, the high court ruled 5-4 along ideological lines that businesses could use standard-form contracts to forbid consumers from banding together in a single arbitration.
The Supreme Court found that the Federal Arbitration Act, which favors arbitrations, trumped a California Supreme Court decision that held that mandatory agreements that waived class actions were unconscionable.
The labor board distinguished its case by saying that the Federal Arbitration Act did not trump the National Labor Relations Act, the landmark 1935 law that gave workers a federally protected right to unionize and engage in concerted action.
”The board has long held, with uniform judicial approval, that the N.L.R.A. protects employees’ ability to join together to pursue workplace grievances, including through litigation,” the ruling said.
Justin M. Swartz, a New York lawyer who represents plaintiffs in employment cases, said, ”The board’s decision recognizes the reality that employees, whether on Wall Street or Main Street, can’t enforce their rights one at a time. They need to be able to pool resources.”
The Horton case was brought by Michael Cuda, a superintendent at the company, who asserted that Horton had misclassified a group of employees as superintendents to deprive them of protections, like overtime pay, under the Fair Labor Standards Act. The company said Mr. Cuda’s employment agreement prohibited group claims.
In the decision released Friday, the board noted that it was not banning agreements that required employees to use arbitration to settle disputes, but that such agreements must offer some way for employees to make class and collective claims, either in arbitration or in court.