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NLRB Administrative Law Judge Further Expands Controversial D.R. Horton Decision, Strikes Down Non-Mandatory Arbitration Agreement

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November 9, 2012

By Amy Zdravecky

The continuing saga over the treatment of the National Labor Relations Board’s (NLRB) D.R. Horton, Inc. decision and the broad implications that it holds for both union and non-unionized workforces recently added another controversial chapter. As we previously reported, in D.R. Horton, the NLRB held that a mandatory arbitration agreement that waives employees’ rights to participate in class or collective actions is unlawful under the National Labor Relations Act (NLRA). Earlier this week, in 24 Hour Fitness USA, Inc., an NLRB Administrative Law Judge (ALJ) not only followed D.R. Horton, but expanded its holding to further restrict the rights of employers to invoke arbitration agreements executed by employees.

At issue in 24 Hour Fitness was an employer’s arbitration agreement included in an employee handbook, as well as an arbitration policy. Just like the arbitration agreement in D.R. Horton, the agreement required employees to submit employment-related disputes to arbitration. The employer had previously successfully invoked this arbitration agreement in several lawsuits filed by employees and former employees. Unlike the agreement in D.R. Horton, however, the agreement allowed employees to opt-out by signing a separate acknowledgment within 30 days of receipt of the employee handbook. Also unlike the agreement in D.R. Horton, the agreement specifically stated that it did not preclude an employee from filing charges with the NLRB or the Equal Employment Opportunity Commission.

Despite these additional protections, the ALJ still found that the agreement violated the NLRA and D.R. Horton. First, the ALJ found that the opt-out process was an “illusion” and “an unlawful burden on the right of employees to engage in collective litigation that may arise in the future.” Second, the ALJ found that the employer could “still effectively prevent concerted employee activity” between the opted-outs and the non-opted-outs because the employer’s arbitration policy prohibits employees who participate in arbitration from disclosing the “existence, content, or results of any arbitration.” Therefore, the ALJ reasoned, the policy “limits the assistance the opted-out employee may obtain from fellow workers.” Finally, the ALJ took issue with the fact that opted-out employees were not easily able to ascertain the identities of other opted-out employees, and therefore were limited in pursuing their Section 7 rights under the NLRA.   

The ALJ did not stop there; he required the employer to “notify all judicial and arbitral forums wherein the (arbitration policy) has been enforced that it no longer opposes the seeking of collective or class action type relief.” The ALJ further ordered the employer to “withdraw any pending motion for individual arbitration” and “request any appropriate court to vacate its order for individual arbitration.” The ALJ defended this remedy by clarifying that he was not ordering a court or arbitrator to provide specific relief. Instead, the ALJ claimed that he was merely requiring the employer to request the relief.     

The breadth of the ALJ’s decision, while not yet binding, is alarming. It not only follows the much-criticized D.R. Horton decision, but expands it to find that even non-mandatory arbitration agreements can violate the NLRA. This further limit on an employer’s attempt to manage risk is cause for all employers to examine the arbitration agreements they issue to employees. 

We expect 24 Hour Fitness to appeal the ALJ’s decision to the NLRB, and we will keep you updated on its status. D.R. Horton is already on appeal to the 5th Circuit Court of Appeals and we will continue to monitor that case as well. In the meantime, based on the recent court decisions which we have summarized here, employers should take note that their arbitration agreements fare better in federal district court. 

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