Fifth Circuit Upholds Validity of Class-Action Waivers with Respect to Workers’ Rights

Class and collective actions against employers have significantly increased over the past decade. Because these type of lawsuits allow plaintiffs to claim damages for all current and former employees so long as they have worked for a company over a three-year period or longer, companies not complying with labor laws face a high risk of liability for costly damages. To mitigate these risks, many companies have begun to include arbitration agreements in their employment contracts with clauses establishing that the employee waives his or her right to initiate a class action against the employer. These waiver clauses often state that employees agree to submit any dispute that may arise with their employer to arbitration and that their arbitration claims shall be submitted individually.

In 2011, a 5-4 majority of the Supreme Court upheld the validity of class-action waivers to prevent consumer class actions against corporate fraud, in AT&T Mobility v. Concepcion. Class-action waivers tend to be hidden in the fine print of service contracts, such as with cellphone plans, credit card agreements, or job applications. These waiver clauses, if enforced by the courts, have the effect of protecting corporate entities by depriving citizens of a means to seek legal redress collectively for any harm they may have suffered.

On December 3, 2013, the Fifth Circuit Court of Appeals extended the Supreme Court’s consumer class-action ruling to the rights of workers, in D.R. Horton, Inc. v. National Labor Relations Board. D.R. Horton undermined the National Labor Relations Act (NLRA) and the Norris LaGuardia Act, which have provided the foundation of national labor policy for over seventy-five years and were enacted specifically to ensure that workers had the right to engage in concerted activities to secure their aid and protection.

Also, in this decision, the Fifth Circuit joined the Second, Eighth, and Ninth Circuit in the view that class arbitration waivers do not violate the NLRA. The Fifth Circuit held that the National Labor Relief Board’s (NLRB) decision failed to recognize the importance of the Federal Arbitration Act (FAA), which provides very narrow grounds for challenging the validity of arbitration agreements. The court acknowledged that there was support for the NLRB’s view that Section 7 of the NLRA protects an employee’s ability to file of collective lawsuits; however, the court found that the analysis must proceed further to consider the purposes of the FAA, which have equal weight to the purposes of the NLRA.

Critics interpret these rulings as a devolution of U.S. labor law to the pre-New Deal era, when corporations were essentially free to treat employees and consumers however they wished, without being exposed to the risk of collective litigation. Critics emphasize that upholding the validity of these class-action waivers results in exploitative, one-sided relationships because of the fact that companies usually have much greater bargaining power than employees. These clauses effectively allow companies to make employment agreements contingent on an employee’s acceptance of class-action waivers. Because employees tend to have much less power to negotiate these clauses, labor activists are concerned that employees would now be effectively deprived of a powerful legal tool to address minimum wage and overtime violations, discrimination, or theft of pensions. To make waivers enforceable, employers only need to be concerned with making the clause clear and conspicuous, and also include language waiving class and collective actions filed in courts and requiring disputes to be brought to arbitration.

If you believe you have been a victim of labor law violations, please contact the Harman Firm, LLP.