You Can No Longer Take Your Company to Court
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The Fiscal Times
January 16, 2014

In 2006, the nationwide home-building company D. R. Horton, began requiring all new employees – and any existing employees who wanted to keep their jobs – to sign an agreement saying that they agreed to “voluntarily waive all rights to trial in court before a judge or jury on all claims” between the employee and the company. They would submit, instead, to binding arbitration.

Not only did employees who signed the agreement waive their right to participate in a class action lawsuit, they also waived their right to participate in class-based arbitration. The National Labor Relations Board in 2012 ruled that the agreement was illegal, but last month the United States Court of Appeals for the Fifth Circuit in New Orleans overturned that ruling.

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The ruling has some labor lawyers concerned that if the appeals court ruling is upheld, clauses barring class action lawsuits and class arbitrations could quickly become standard elements in most employment contracts, effectively barring many non-unionized workers from a tool that has historically been used to vindicate workers’ rights.

Catherine K. Ruckelshaus, general counsel and program director for the National Employment Law Project, said that because of under-funding of agencies that enforce labor laws, class action “has been pretty much the only game in town” for workers looking for relief from abusive employers. “If you can’t aggregate the claims, there is very little pressure on the employer,” said Ruckelshaus.

In recent years class actions have been used successfully to challenge the practice of making employees work “off the clock” at major retailers and to require that overtime pay be given to workers illegally classified as exempt from overtime requirements.

There are several arguments in favor of allowing contracts that mandate arbitration. It’s usually cheaper and faster than going through the court system, and to be sure, businesses are often subjected to frivolous lawsuits in the guise of class actions.

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But according to Ruckleshaus, the contracts take advantage of employees who aren’t in a position to refuse to sign them, and who get nothing in return for what they are giving up.

“Almost any worker or employee is not going to feel empowered to say ‘No, I’m not going to sign that’ if it’s presented as a condition to getting or keeping a job,” she said. “It’s an incredible assault on our right to our day in court.”

“That is why the case is so important,” said Craig Becker, who served as an NLRB board member under a recess appointment until the end of 2011, and voted in favor of the agency’s ruling in the Horton case.

Becker, now general counsel to the AFL-CIO, said the ability of workers to pool resources in order to act against perceived unfair practices is “a mechanism that most people take for granted.”

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Mandatory arbitration clauses are not new, and are not unique to employment contracts. They are a common feature of credit card contracts and other financial agreements. (And are currently being examined by the Consumer Financial Protection Bureau.) They have also, for example, historically been a part of employment contracts for executive-level and other high-ranking employees in the financial services industry.

But their increasing use in low-wage employees’ contracts, along with the bar to class action, are relatively recent developments, which have attracted the attention not just of the courts, but of lawmakers.

Sen. Al Franken (D-Minn.) and Rep. Hank Johnson (D-Ga.) have sponsored a bill, the Arbitration Fairness Act of 2013, which would bar companies from requiring employees and consumers to consent to binding arbitration prior to a dispute arising. Consent to binding arbitration would still be allowed after a dispute has arisen.

In a statement provided to the Fiscal Times, Franken said, “Mandatory arbitration puts consumers and workers at a huge disadvantage, limiting their access to meaningful legal recourse and preventing them from banding together with others who experienced the same injustices. My Arbitration Fairness Act would restore critical rights to workers and consumers who have been wronged.”

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The future of the arbitration clause in employment contracts in the wake of the Horton decision is unclear – a single ruling in a federal appeals court, said a former NLRB member, is unlikely to convince businesses that their use is now unchallengeable.

“The key take-away from this case is that the issue is not dead, said Ron Meisburg, former general counsel of the NLRB and, for a time, a board member under a recess appointment.

“The Board is very likely to continue to enforce the law and maintain that these kind of clauses are unlawful,” continued Meisburg, who is now a partner and co-head of the Labor-Management Relations Practice Group at the Proskauer law firm in Washington, DC. “So for the time being, maintaining these contract clauses puts companies at risk of NLRB prosecution and an adverse decision.”

A number of other cases, however, including two that are working their way through the U.S. Court of Appeals for the Second Circuit, have many labor attorneys convinced that the Supreme Court is likely to weigh in on the issue in the near future.

Follow Rob Garver on Twitter @rrgarver

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A longtime reporter on the intersection of the federal government and the private sector, Rob Garver is National Correspondent, based in Washington, D.C. He has written for ProPublica, The New York Times and other publications.