Many employers prefer to arbitrate employment disputes rather than have these disputes end up in the traditional courtroom with a jury.   As a result, a fair number of employers require their employees sign arbitration agreements for employment litigation, including class action claims.

The validity of these class action waivers was called into question by the NLRB in a recent case, D.R. Horton.   Basically, under Section 7 of the National Labor Relations Act, employees have a right to join together in “protected concerted activity” (PCA for short).   This protection applies to both unionized and non-unionized employers.    PCA is a fairly broad concept and its intersection with arbitration agreements is what spurred D.R. Horton.  In that case, the employer required – as a condition of employment – that the employees sign an agreement to arbitrate class action claims.  The NLRB cried foul – after all, aren’t employees banding together in a class action lawsuit a form of PCA?  The NLRB said “yes” and made clear that such agreements are illegal under federal labor law.

In what appears to be the first case decided after D.R.Horton, Johnmohammadi v. Bloomingdales, Inc.,  the Central District of California gave a limited reading of Horton and upheld a class action arbitration waiver agreement.  The facts of Bloomingdales are similar but not identical to Horton – the major difference is that instead of being a condition of employment, in Bloomingdales, employees had the option to opt-out of the arbitration agreement within 30 days of being hired.   This was dispositive to the Judge who ruled in Bloomingdale’s favor.

An argument could be made that even with the opt-out, the agreement was still a condition of employment — in that that nobody really reads the opt-out anyway and that employees were under implicit pressure to just agree to the traditional arrangement with Bloomingdales, which included the arbitration agreement.

This argument was rejected by this Court, but I would not say that future judges would reach the same conclusion.   Judges tend to differ in their views as to whether contracts like these – sometimes called contracts of adhesion – should be strictly enforced because one party – big,  bad Bloomingdales – has an unfair advantage of the little guy – in this case, Ms. Johnmohammadi.  Thus, it’s possible, if not likely, that other courts come down a different way.

It still is  wise for employers to include class action waivers in some way, like Bloomingdales did.   But as the this case shows, any such waivers in favor of arbitration will be subject to an argument from the Plaintiff’s bar that Horton controls and the arbitration agreement is invalid as a condition of employment.

The lesson for employers: arbitration agreement cannot be a direct condition of employment, and the less the agreement even appears that way, the better.