Recently, in Richards v. Ernst & Young, No. 11-17530, 2013 WL 4437601 (9th Cir. August 21, 2013), the Ninth Circuit joined two other federal circuits, the Second and the Eighth, in rejecting the application of the National Labor Relations Board’s (“NLRB”) decision of In re D.R. Horton, 357 N.L.R.B. No. 184, 2012 WL 36274 (Jan., 3, 2012).

In D.R. Horton, the NLRB invalidated an arbitration agreement requiring an employee to waive class arbitration because it purportedly violated the National Labor Relations Act by infringing the employee’s right to seek collective action. The Second and Eighth Circuits declined to apply D.R. Horton in cases where the parties alleged arbitration agreements containing class action waivers violated the Fair Labor Standards Act (“FLSA”) in Sutherland v. Ernst & Young LLP, No. 12-00304, 2013 WL 4033844 (2d Cir. Aug. 9, 2013), and Owen v. Bristol Care Inc., 702 F.3d 1050 (8th Cir. 2013), respectively. In both cases, the two appellate courts held that the terms of arbitration agreements must be rigorously enforced, unless a contrary congressional command rendered class arbitration invalid under FLSA. As Congress did not expressly prohibit these waivers when it enacted FLSA, the Second and Eighth Circuits upheld the arbitration agreements.

The Ninth Circuit followed suit in Richards. After determining Richards incurred no prejudice by Ernst & Young’s late claim for arbitration, the Ninth Circuit denied application of D.R. Horton for two reasons. First, the Ninth Circuit refused to entertain Ms. Richards’ claim that D.R. Horton prohibited the enforcement of the arbitration agreement because she failed to make this argument in the district court. Second, even if properly before the Court, the Ninth Circuit noted that D.R. Horton was not applicable because Congress did not expressly override any provision in the Federal Arbitration Act to prohibit class action waivers when it enacted the National Labor Relations Act or the Norris-LaGuardia Act.

To evidence the stark contrast between the application of D.R. Horton by the federal courts and the NLRB, the NLRB denied a similar provision included in employment agreements of JP Morgan Chase on the same day the Ninth Circuit issued Richards. Although the Administrative Law Judge acknowledged that federal district courts and the Eighth Circuit rejected its application, he held he must follow D.R. Horton “unless and until it is overturned by the Supreme Court or reversed by the Board itself.”  

Currently, D.R. Horton is on appeal before the Fifth Circuit. Although oral arguments were heard in February 2013, D.R. Horton continuously updates the Fifth Circuit to alert it of federal district and appellate courts’ refusal to apply D.R. Horton in similar instances. Whether the Fifth Circuit follows its sister appellate courts, and overrules D.R. Horton, or affirms the same, the Supreme Court may be asked to weigh in on this issue depending on the NLRB’s stance after the Fifth Circuit’s decision.

Under Richards, Courts will enforce mandatory arbitration clauses or agreements, even years after litigation commenced, as long as no prejudice occurred to plaintiff. Most importantly, federal courts recognize the rights of parties to limit future liability by agreement. Experienced employment counsel can assist in drafting or reviewing your employment agreement to potentially minimize exposure to future employment and class action claims.