Millions of parties enter into arbitration agreements each year, and those parties expect courts to honor those agreements.  Congress enacted the Federal Arbitration Act (FAA) to protect this very freedom of contract.  And the Supreme Court has consistently reaffirmed that arbitration is a matter of consent, and that private agreements to arbitrate should be enforced according to their terms.

Plaintiffs’ attorneys, on the other hand, hate arbitration agreements because they deprive them of having contingency fee clients.  Resolution under mandatory arbitration is often swifter than trials, and plaintiffs’ attorneys often get little or no money out of them.

The National Labor Relations Board (NLRB) recently ruled against home builder D.R. Horton, holding that a class action waiver was unenforceable under the National Labor Relations Act (NLRA).  At issue was D.R. Horton’s mutual arbitration agreement and class action waiver that the company entered into with its employees.  The NLRB held that an agreement proscribing class and representative actions violates the NLRA, which gives employees the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

At a minimum, the decision appears to be in serious tension with the Supreme Court’s recent decisions in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), and AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).  Stolt-Nielsen held that parties to an arbitration agreement that is silent on class arbitration cannot be compelled to submit to class arbitration. The following year, Concepcion held that the FAA preempted a California law that held exculpatory class waivers to be unenforceable.

The NLRB’s ruling was expected to have wide-reaching implications for a business’s ability to enter into arbitration agreements with its employees.  But, in considering whether agreements similar to D.R. Horton’s were invalid under the NLRA, three district courts have either distinguished or rejected the NLRB’s interpretation.  In Sanders v. Swift Transportation Co. of Arizona, LLC, the U.S. District Court for the Northern District of California held that the NLRB’s decision was inapposite and would not be considered in determining the employer’s motion to compel arbitration, which was subsequently granted.  Similarly, in Palmer v. Convergys Corp., the U.S. District Court for the Middle District of Georgia struck the plaintiffs’ collective action allegations and declined to follow the NLRB’s ruling “because it does not meaningfully apply to the facts of the present case.”  And in Johnmohammadi v. Bloomingdales, Inc., the U.S. District Court for the Central District of California granted the employer’s motion to compel arbitration despite the plaintiff’s reliance on D.R. Horton.  Specifically, the district court stated that the NLRB’s holding was limited to situations where an arbitration agreement was made a condition of employment, which was not the case at Bloomingdales.

We at WLF will continue to monitor the way the NLRB’s controversial ruling on arbitration agreements is implemented in the wake of D.R. Horton.