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5th Circuit Case Finds Class Action Waiver Enforceable

On December 3, 2013, the 5th Circuit issued an important new decision finding that class action waiver provisions in mandatory arbitration agreements under the Federal Arbitration Act (“FAA”) are enforceable.  However, in the specific case at bar the court found that the agreement in question was unenforceable because it reasonably could be read to prohibit employees from filing complaints of unfair labor practices with the NLRB.

In the case, the employee and employer entered into an arbitration agreement which provided that arbitration was the exclusive forum for disputes, and that neither party could resort to filing a case in court.  The agreement also contained a class action waiver provision.  The provision provided that: “the arbitrator [would] not have the authority to consolidate the claims of other employees” and would “not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or a class of employees in one arbitration proceeding.”

After his employment ended, the employee and a class of similarly-situated employees attempted to fashion a class-wide arbitration, alleging that they had not received overtime payments due to improper classification under the FLSA.  The employer responded by noting that the arbitration agreement banned such class arbitration attempts, but acknowledged that the employer could proceed on an individual claim if he so chose.  The employee claimed the arbitration agreement violated the NLRA.  A NLRB ALJ found that the arbitration agreement could be interpreted as prohibiting employees from filing unfair labor practice charges, and the NLRB agreed, noting that the agreement illegally prohibited the employee from engaging in concerted activities.

The 5th Circuit agreed with the NLRB’s analysis that filing class actions is a protected concerted activity under the NLRA, but noted that it also had to consider the FAA.  The court stated that under the FLSA there is no substantive due process right to proceed collectively, and that the FAA’s “savings clause” was inapplicable here because the NLRB’s decision would disfavor arbitration by requiring a class component.  The court noted that the NLRB’s text and statutory history did not contain an express indication that is should override the FAA’s presumption in favor of arbitration, and that the arbitration agreement should be enforced as written.

The court’s ruling solidifies the recent trend towards including class waiver provisions in arbitration agreements.  The court also reiterated that absent specific Congressional language, an arbitration agreement must be enforced as to its terms.  The court did, however, note that agreements cannot contain language that might make an employee think filing a charge with the NLRB is prohibited- that right cannot be abrogated through an arbitration agreement.