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Federal appeals court upholds arbitration agreement prohibiting employee class action

The US Court of Appeals for the Fifth Circuit [official website] on Wednesday ruled [opinion, PDF] that employers can require their employees to sign an arbitration agreement prohibiting them to pursue claims in courts or in a class action. The ruling overturned a prior decision by the National Labor Relations Board (NLRB) [official website] which held that requiring employees to sign an arbitration agreement violated the National Labor Relations Act (NLRA) [text]. The case involved a Texas-based home builder that required its employees to sign an arbitration agreement as a condition of employment. The three-judge panel, in a 2-1 decision, stated that pursuant to case law addressing the Federal Arbitration Act (FAA) [text, PDF] the use of class action procedure is not a substantive right. It further noted that the general language of the NLRA is insufficient to override the application of the FAA which favors arbitration. Thus, the court held that the employer's arbitration agreement containing class-action waivers are enforceable under the FAA. However, the court noted that the agreement must clarify that the employee does not waive his right to file a claim with the NLRB. Under the current version the employee would reasonably interpret the agreement as prohibiting such a right.

In June the US Supreme Court [official website] ruled [JURIST report] in Oxford Health Plans LLC v. Sutter [SCOTUSblog backgrounder] that an arbitrator did not exceed his powers under §10(a)(4) of the FAA when he found that the parties' contract provided for class arbitration. JURIST Guest Columnist Rebecca Bielski discussed [JURIST op-ed] employers' arbitration agreements and argued that most of the employees sign such agreements neither knowingly nor voluntarily given they do not have much leverage. In early 2012, the Supreme Court ruled [JURIST report] in CompuCredit Corp. v. Greenwood [SCOTUSblog backgrounder] that because the Credit Repair Organizations Act (CROA) is silent on whether claims can proceed in an arbitrable forum, the FAA requires the arbitration agreement to be enforced according to its terms.

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