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Labor: Arbitration agreements and class action waivers legal under NLRA

California court rejects NLRB’s position that the NLRA trumps the Federal Arbitration Act

On July 18, in Nelsen v. Legacy Partners Residential, Inc., a California district court became the latest court to reject the National Labor Relations Board’s (NLRB) position that the National Labor Relations Act (NLRA) prohibits waivers of an employee’s right to file joint, class or collective claims as a condition of employment. The NLRB first expressed this position earlier this year in D.R. Horton, Inc. v. Cuda. The NLRB determined that class waiver agreements constitute an unfair labor practice when the waiver applies to claims regarding wages, hours or other conditions of employment, because they prohibit employees from engaging in concerted activity protected by the NLRA. The NLRB also held that a violation of the NLRA exists regardless of whether the agreement prohibits such claims in arbitration or court.

In D.R. Horton, the waiver required employees to agree that:

The California court went on to reject the holding in D.R. Horton, citing the fact that only two members signed the D.R. Horton decision and that the “subject matter of the decision—the interplay of class action litigation, the FAA, and section 7 of the NLRA—falls well outside the [NLRB’s] core expertise in collective bargaining and unfair labor practices.” Further, the court found that D.R. Horton states “a novel interpretation of section 7 and the FAA [without citing] prior legislative expression, or judicial or administrative precedent suggesting class action litigation constitutes a ‘concerted activity [under the NLRA]’ … or that the policy of the FAA favoring arbitration must yield to the NLRA in the manner it proposes.”

The court also relied on the fact that, prior to the D.R. Horton decision, at least “two federal district courts [Southern District of California and Northern District of Georgia] had specifically rejected arguments that class action waivers in the labor context violated section 7 of the NLRA.” Since D.R. Horton, at least two federal district courts (Northern District of California and Southern District of New York) have rejected the NLRB’s position.

Contributing Author

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Christine McLaughlin

Christine Liu McLaughlin is a shareholder in Godfrey & Kahn, S.C.'s Labor & Employment Law Practice Group in the Milwaukee office and is chair of the firm's...

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Contributing Author

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Rufino Gaytán

Rufino Gaytán is an associate in Godfrey & Kahn, S.C.'s Labor & Employment Law Practice Group in the Milwaukee office. Rufino assists private and public employers in addressing...

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