In a decision that will no doubt anger many companies, the labor board concluded that a federal law protecting workers right to engage in concerted action trumps any arbitration agreement that bars them from bringing group claims. The ruling applies to nonmanagement private sector workers, union and nonunion, from low-wage restaurant workers to well-paid employees on Wall Street.
The ruling examined an agreement used by a nationwide homebuilding company, D. R. Horton, in which workers were required to waive their right to sue in court and instead bring all claims to an arbitrator on an individual basis. The agreement prohibited the arbitrator from consolidating claims, allowing a class or collective action or awarding relief to a group or class of employees.
The labor board ordered Horton to rescind the agreement or change it to make clear to employees that they were not waiving their right to pursue collective action.
This is a big deal, said Professor Alex Colvin, an expert on mandatory arbitration agreements who teaches at the Cornell School of Industrial and Labor Relations. Mandatory arbitration agreements are so widespread, and this would suggest that many of them violate labor law by barring class actions. I also think the business community will be up in arms because you have federal labor law being applied in a nonunion setting.
Mr. Colvin said more than 25 percent of nonunion workers had signed an agreement as a condition of employment in which they promised to take any employment dispute to arbitration, rather than to a judicial forum.
In amicus briefs, the Labor Department and the Equal Employment Opportunity Commission supported the workers position.
But the United States Chamber of Commerce and other business groups argued in opposing briefs that the labor board should defer to a Supreme Court decision issued last April involving consumers who had sued AT&T Mobility for fraud. In that case, the high court ruled 5-4 along ideological lines that businesses could use standard-form contracts to forbid consumers from banding together in a single arbitration.
The Supreme Court found that the Federal Arbitration Act, which favors arbitrations, trumped a California Supreme Court decision that held that mandatory agreements that waived class actions were unconscionable.
The labor board distinguished its case by saying that the Federal Arbitration Act did not trump the National Labor Relations Act, the landmark 1935 law that gave workers a federally protected right to unionize and engage in concerted action.
The board has long held, with uniform judicial approval, that the N.L.R.A. protects employees ability to join together to pursue workplace grievances, including through litigation, the ruling said.
Justin M. Swartz, a New York lawyer who represents plaintiffs in employment cases, said, The boards decision recognizes the reality that employees, whether on Wall Street or Main Street, cant enforce their rights one at a time. They need to be able to pool resources.
But Marshall B. Babson, a former labor board member who helped write the amicus brief filed by the chamber, said the board was using an overly broad reading of concerted activity. The National Labor Relations Act was not intended to be a super class action statute that protects and preserves the right to proceed as a class in all circumstances without regard to the usual considerations by the court, he said.
The ruling was completed on Tuesday and signed by two Democratic members, before one of those Democrats, Craig Becker, stepped down that day as his
recess appointment expired. The boards Republican member, Brian Hayes, recused himself in the case, without giving a reason. Board officials said the decision was legitimate because the board had a three-person quorum at the time the ruling was signed.
On Wednesday, President Obama defied Republicans in Congress and made three recess appointments to the labor board to prevent it from becoming paralyzed. When Mr. Becker stepped down on Tuesday, the board shrank to two members, including its chairman, Mark G. Pearce. Under a Supreme Court ruling, the board, which has five seats, cannot issue any decisions unless it has at least three members.
The Horton case was brought by Michael Cuda, a superintendent at the company, who asserted that Horton had misclassified a group of employees as superintendents to deprive them of protections, like overtime pay, under the Fair Labor Standards Act. The company said Mr. Cudas employment agreement prohibited group claims.
In the decision released Friday, the board noted that it was not banning agreements that required employees to use arbitration to settle disputes, but that such agreements must offer some way for employees to make class and collective claims, either in arbitration or in court.
The decision is likely to be appealed to a federal court of appeals.
Business groups that filed amicus briefs in the case repeatedly cited the AT&T decision by the Supreme Court as preventing the type of ruling made by the labor board. In that case, a California couple had objected to a $30 charge for what was said to be a free cellphone. They had signed a take it or leave it standard contract from AT&T Mobility that required them to resolve disputes through arbitration and prohibited them from joining with others to seek class-action treatment, whether in arbitration or in traditional litigation in court.
Susanne Craig contributed reporting.