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National Labor Relations Board Rules Arbitration Provision Violates Act

The National Labor Relations Board (NLRB) ruled on January 6, 2012 that it is a violation of federal labor law, specifically Section 8(a)(1) of the National Labor Relations Act (NLRA) to require employees to sign arbitration agreements that prevent them from joining together to pursue employment-related legal claims in any forum, whether in arbitration or in court.

The Decision by the NLRB analyzed an arbitration agreement required as a condition of employment by nationwide homebuilder D.R. Horton, under which employees waived their right to a judicial forum and agreed to bring all claims to an arbitrator on an individual basis. The agreement prohibited the arbitrator from consolidating claims, fashioning a class or collective action, or awarding relief to a group or class of employees

The NLRB found the agreement unlawful, as it restricted the employees Section 7 rights to engage in "concerted activity" protected by the NLRA. The Board emphasized that the ruling does not require class arbitration as long as the agreement leaves open a judicial forum for group claims.

Chairman Mark Gaston Pearce and Member Craig Becker joined in finding the agreement unlawful. Member Brian Hayes was recused from the case. This decision greatly impacts the expanding use of mandatory arbitration agreements in employment relationships.

The decision requires Horton to rescind the agreement or revise it to make clear to employees that they are not waiving their right to pursue a class or collective action in all forums.  Employers and employees should consult with a labor and employment attorney to clearly understand their rights and obligations before entering into an arbitration agreement.

By: Justin A. Morocco

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