Clash of the Titans: FLSA Concerted Activity vs FAA Mandatory Solo Arbitration

A few years ago, the National Labor Relations Board ("NLRB") issued an important decision in a case called D.R. Horton, holding that an employer violated federal labor law by requiring its employees to sign an arbitration agreement banning class actions as a condition of employment.  The NLRB reasoned that the broad language in Section 7 of the NLRA, which gives employees the right to “engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection,” includes the right to file a class or collective action over wages, hours, or working conditions, whether in court or before an arbitrator. Because the mandatory arbitration agreement in D.R. Horton barred employees from doing so and thus prevented them from exercising their Section 7 rights, the NLRB held that the agreement violated the NLRA. Last week, the U.S. Court of Appeals for the Fifth Circuit overturned the NLRB’s decision. The Court's decision is fairly straight forward in its reasoning: All things being equal, the Federal Arbitration Act ("FAA") trumps the procedural right to maintain a class action in court to enforce rights set forth in another law.  Since congress did not explicitly state that the NLRA trumps the FAA, then the single arbitration requirement wins out.

The obvious potential flaw in this reasoning is that under the NLRA's Section 7, acting together to file a class action in a concerted fashion is not merely a procedural vehicle. Rather, it is the very substantive right created by the statute in the first place.  The court's decision appears to ignore this fact. So, if employees wish to group together and pursue concerted activity in court or in arbitration, their employer is now free to mandate that said "concerted activity" be handled separately. Many would argue that this effectively eliminates one of the most important substantive protections provided by the NLRA.

It is not clear whether the employees in this case will appeal to the U.S. Supreme Court or whether they would actually fare better there given that court's record on arbitration issues.