In The Arena A Court Just Gutted Your Right to Sue Your Boss

Craig Becker is general counsel to the AFL-CIO and was a member of the NLRB when D.R. Horton was decided.

Unnoticed except by employment lawyers, the United States Court of Appeals in New Orleans last month issued what might be the most important workers’ rights opinions in decades. The decision permits employers to require workers, as a condition of keeping their jobs, to agree to arbitrate all workplace disputes and to do so as individuals, standing alone against their employer. The ruling could spell the end of employment class actions that were instrumental to breaching the barriers of both race and sex discrimination after the passage of the 1964 Civil Rights Act and remain critical to enforcement of minimum wage and other labor standards laws.

The case involved D.R. Horton, a home-builder operating in 27 states with annual revenue over $6 billion. The company required all employees to sign an agreement providing that employment disputes would be resolved by binding arbitration and that the arbitrator “may hear only Employee’s individual claims.” When one employee tried to pursue a claim that D.R. Horton had misclassified an entire category of workers as exempt from the protection of federal overtime law, the company insisted that each worker had to file his or her own claim.


The employee sought relief from the National Labor Relations Board (NLRB), which held that the “agreement” to waive the right to join with co-workers in pursuing workplace claims violated federal labor law, which not only gives employees a right to form unions and engage in collective bargaining, but also to “engage in … concerted activities for the purpose of … other mutual aid or protection.” More than 30 years ago, the Supreme Court recognized that labor law protects employees when “they seek to improve their working conditions through resort to administrative and judicial forums.” After all, if employees have a right to strike together for higher wages, surely they can sue together to obtain the same result. And that is what the board held: Just as employers cannot require employees to “agree” not to join a union by signing what’s known as a “yellow dog contract,” neither can they require employees to “agree” not to file a class action.

The New Orleans Court of Appeals, by a 2-1 vote, reversed the board’s decision, concluding that employees’ longstanding labor-law right to act collectively was trumped by the Federal Arbitration Act (FAA), which was enacted in 1925 to require courts to enforce private parties’ lawful agreements to resolve disputes out of court. But the FAA does not say anything about class actions and does not require enforcement of arbitration agreements that violate another law, such as the National Labor Relations Act. The court’s holding was guided instead by recent Supreme Court decisions giving the FAA an expansive reading—for example, permitting AT&T Mobility to enforce an arbitration clause appearing in the fine print in its form contract with cell-phone users, precluding consumers from bringing a class action.

If the court’s holding becomes the governing rule across the country, no well-counseled employer will permit its employees to bring a class action. Already, employers as diverse as J.P. Morgan, 24 Hour Fitness, Applebee’s and United Healthcare require such waivers. And all but the most sought-after employees, baseball stars and skilled computer programmers, and those represented by unions, will have to yield their rights.

The result will be a rightless workplace. Absent class actions, one federal judge concluded, “each employee would have to … undertake the personal risk of litigating directly against his or her … employer. Many employees would likely be unable to bear such … risks.” Employers will therefore be able to cheat each of a large number of employees a little with impunity. With government enforcement shrinking, the laws of the workplace, requiring payment of a minimum wage, prohibiting discrimination and preventing harassment, will in many cases not be enforced.

American workers are increasingly vulnerable to such violations. Job losses during the recent recession were concentrated in mid-wage occupations, but during the subsequent recovery growth has been concentrated in lower-wage occupations—store clerk, fast-food server, etc.—which grew 2.7 times as fast as higher-wage occupations. Employees in those jobs not only suffer low wages, but an epidemic of wage theft as their employers cut corners to compete. A recent study of low-wage workers in Los Angeles, Chicago and New York found that 26 percent were paid less than the minimum wage and 76 percent worked more than 40 hours per week without receiving required overtime pay.

Do federal judges think that a fast-food worker denied wages owed him will dare to pursue arbitration alone against his employer? A female cashier denied promotion based on her sex? Perhaps Congress will ensure that the laws of our land have continued vitality inside the workplace when it takes up the Arbitration Fairness Act this year.