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Businesses win in U.S. court ruling on worker arbitration pacts

The sign for a development built by D.R. Horton is seen in Arvada, Colorado November 19, 2009. REUTERS/Rick Wilking
The sign for a development built by D.R. Horton is seen in Arvada, Colorado November 19, 2009. REUTERS/Rick Wilking

By Amanda Becker

(Reuters) - U.S. employers can use arbitration agreements to require employees to resolve disputes on an individual basis, a federal appeals court has ruled, marking a victory for companies and a setback for labor groups

In a 2-1 ruling on Tuesday, the 5th U.S. Circuit Court of Appeals overturned a January 2012 National Labor Relations Board (NLRB) decision that had invalidated such an arbitration agreement used by homebuilder D.R. Horton Inc. .

The case had been closely watched by business groups, employment lawyers and labor unions.

"It's an important victory not just for D.R. Horton, but for employers across the country who have struggled with this issue and the decisions coming out of the NLRB," said Ron Chapman, an attorney at Ogletree Deakins who represented the homebuilder.

Chapman said U.S. employers have struggled as class-action and collective-action litigation over workplace disputes has "sky-rocketed" in recent years.

The ruling by the New Orleans-based court was the first time a federal appeals court ruled directly on a key NLRB finding. The board has maintained that the Federal Arbitration Act (FAA) cannot be used to prevent workers covered by the National Labor Relations Act (NLRA) from resolving disputes as a group.

An NLRB spokesman said the board is "reviewing the court's decision." The NLRB is a federal government board that polices labor disputes and oversees union elections.

AGREEMENTS PROLIFERATE

To mitigate legal risks, many employers have begun using arbitration agreements that must be signed by workers as a condition of employment. The agreements contain class-action waivers that bar workers from pursuing arbitration as a group.

But the NLRA protects the rights of private-sector workers to organize and take collective action to improve working conditions. So, the board has said, arbitration agreements cannot bar workers from bringing collective claims.

The NLRB has cited this rationale in the D.R. Horton case to invalidate arbitration agreements at other companies, including Ralph's Grocery Co and Everglades University.

The AFL-CIO, the largest U.S. federation of labor unions, and the Services Employees International Union argued in court filings that the board's reasoning was a natural extension of labor law precedent dating to the 1930s.

"As Congress, the NLRB, and the courts have repeatedly found, workers who cannot join forces to exercise rights in the workplace are powerless in the face of their economically dominant employers," attorneys for the labor groups wrote.

ARBITRATION NOT ADDRESSED

The 5th Circuit said the NLRA generally does protect taking collective action, but does not specifically address arbitration. There is no evidence that Congress intended the NLRA to override the FAA, the panel wrote.

Ronald Meisburg, attorney at Proskauer Rose who represents employers and was a one-time NLRB general counsel, cautioned that employers should not anticipate immediate relief after the 5th Circuit's D.R. Horton ruling.

"The board looks at its jurisdiction as being national in scope, so they generally are not inclined to let one circuit be the decider of its policy for the rest of the country," Meisburg said. "For that reason, I would suspect the board and general counsel will continue to apply the D.R. Horton decision for the foreseeable future."

The 5th Circuit hears appeals in cases originating in Texas, Louisiana and Mississippi.

The case is D.R. Horton Inc v. National Labor Relations Board, 5th U.S. Circuit Court of Appeals, No. 12-60031.

(Editing by Kevin Drawbaugh and Bob Burgdorfer)

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