© 2013 The Texas Lawbook.
By Mark Curriden, JD
Senior Writer for The Texas Lawbook
(December 3) – Large Texas businesses scored a major legal victory Tuesday when a federal appeals court ruled that they can use employment contracts to ban class action arbitration proceedings in wage and work condition disputes with employees.
The U.S. Court of Appeals for the Fifth Circuit ruled that the National Labor Relations Board overstepped its authority and violated federal law when it told Fort Worth-based D.R. Horton that it could not require its employees to sign an agreement that prohibited them from joining together in a collective arbitration case.
However, the three-judge panel found that employment agreements such as Horton’s can not be worded in a way that seemingly bars workers from being able to file labor grievances with the federal government.
The case is being closely followed by lawyers and human resource officials at scores of large Texas-based corporations, including AT&T, JC Penny, Radio Shack and PepsiCo. More than 40 pro-business organizations, including the Chamber of Commerce, filed legal briefs supporting Horton’s position in the case.
“This is a huge victory for all employers in Texas,” said Ron Chapman, a partner at Ogletree Deakins in Dallas who represents Horton. “Class arbitration proceedings have become increasingly common and the risks are so extreme that companies are forced to settle even when the evidence and law are strongly in their favor.”
Chapman said that there has been a tremendous increase during the past two decades in class and collective actions asserted against employers for issues such as wage and hour claims for unpaid overtime and meal and rest break penalties.
Horton, a homebuilder that operates in more than 20 states, began in 2006 requiring new and existing employees to sign, as a condition of employment, an agreement in which workers waived their rights to trial by jury and agree to settle all job-related disputes individually in arbitration.
The mandatory employment agreement stated that arbitrators would “not have the authority to consolidate the claims of other employees” and that arbitrators could not “award relief to a group or class of employees in one arbitration proceeding.”
In 2008, Michael Cuda and dozens of other Horton employees filed a complaint with the NLRB claiming that their employer had misclassified them as exempt employees, that the company was unfairly denying them overtime pay and that the class action waiver violated the National Labor Relations Act.
In 2012, the NLRB ruled that the anti-class action provisions violated the federal labor law and instructed Horton to inform their employees that they were not prohibited from resolving their claims as a group or class.
Chapman, an expert in labor and employment law, said that many Texas companies were on the verge of adopting similar employment contracts two years ago but “decided to wait and see how the issue shook out in the courts before implementing arbitration agreements with class action waivers.”
Horton appealed to the Fifth Circuit, claiming that the Federal Arbitration Act was the controlling federal law in the case and that it gives companies and individuals wide latitude to construct mandatory arbitration agreements as narrowly or broadly as they desire.
On Tuesday, in a two-to-one decision, the Fifth Circuit agreed with the Fort Worth homebuilder.
“The use of class action procedures is not a substantive right,” Judge Leslie Southwick wrote for the three-judge panel. “Requiring a class mechanism is an actual impediment to arbitration and violates the [Federal Arbitration Act]. There is no basis on which to find that the text of the NLRA supports a congressional command to override the FAA.”
Chapman said that he received dozens of positive emails from corporate lawyers at Texas business Tuesday after the court decision was announced.
“The number of companies that have arbitration agreements with class action waivers is increasing as more and more companies realize the enormous benefits of being able to defeat a class or collective action through the use of such agreements,” he said. “With this decision from the Fifth Circuit, even more companies will adopt this approach.”
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