Presented by Harry I. Johnson Arent Fox LLP Los Angeles, CA March 7, 2012 D.R. Horton & Class Action Waivers: Sea Change Or Flash In The Pan?

2 D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012)  Context of class action waivers  AT&T Mobility v. Concepcion made employers more inclined to include the waiver: e.g.,  D.R. Horton Holding: Mandatory arbitration agreement precluding class treatment in both judicial and arbitral fora violates Section 8(a)(1)’s protection of employees’ right to engage in Section 7 “protected concerted activity”

3 What is protected, concerted activity?  “Employees shall have the right to… engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection…”  Exs.: 2+ employees addressing employer about pay; 2+ employees discussing work-related issues with each other; 1 employee speaking on behalf of one or more co-workers about workplace conditions; strikes; work stoppages.

Rationale of D.R. Horton  “[T]he Board has consistently held that concerted legal action addressing wages, hours or working conditions is protected by Section 7.”  Under Section 8, “employers cannot enter into individual agreements with employees in which the employees cede their statutory rights to act collectively.” 4

Rationale of D.R. Horton  No FAA conflict, because…  “[O]ur holding, that the [agreement] conflicts with the NLRA, does not rest on ‘defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue’,” quoting Concepcion.  Class actions are a substantive right. 5

 “Nothing in the text of the FAA suggests that an arbitration agreement that is inconsistent with the NLRA is nevertheless enforceable.”  NLRA and NLG Act trump FAA ****  Also: Opt-out arbitration agreements not addressed, but probably fall in ambit of rationale. 6

7 GC Memorandum: New Category of Cases

8 Problems with the long-term validity of D.R. Horton  Two member decision (No dissent; New Process Steel issue)  Very politicized, high impact decision (e.g., Epilepsy Foundation)

9 Problems with the long-term validity of D.R. Horton  Rationale problems…  Ignores FAA rule of enforcement “according to terms”  Protected concerted rights can be waived by agreement (e.g., no strike clause)  Breadth of ruling means that employers cannot enter into all types of contracts with employees  Many modern class actions are not truly brought “on behalf of” anyone (opt-outs)  Class actions are not a substantive right (e.g., located in procedural rules)  NLRA could only “trump” FAA if there is an actual conflict, but this is a created one

10 The Biggest Problem: The Board gets it wrong on the silence/conflict issue  US SCt.: Statutes that are silent on the specific topic of arbitration enforcement cannot then be interpreted to bar enforcement of arbitration agreements.

11 Other Enforcement Issues  All cases go to the Division of Advice.  Board orders are not self-executing and take a long time to become final.  Not a big Section 10(j) priority, #15 of 15 topics…  Board is acting outside its traditional area of authority.

12 CONCLUSION / Q & A  Harry I. Johnson, III  Arent Fox LLP / Los Angeles, CA   Compliance Video Podcast: