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Franchisees Get A Break From 5th Circuit

It may be the last good news for a long time, at least on the labor front.

As small business owners get targeted by class-action employment litigation, many have responded by taking a page from the large franchisors: require arbitration and ban class action proceedings. A federal court has just ruled that such a response is permitted, contrary to the position taken by the National Labor Relations Board (NLRB).

Two weeks ago franchisees were heartened by a court reversal of the NLRB ruling that prohibited employers from requiring employees to sign a waiver of class action rights and enforcing mandatory arbitration of labor disputes.

The case, D.R. Horton Inc v. NLRB, was decided on December 3 by the business-friendly 5th Circuit Court of Appeals, and overturned the January 2012 NLRB ruling. The Court did note that an employer may not prohibit an employee from filing an unfair labor practice claim with the NLRB.

Given the rise in litigation and the fact that most standard insurance policies exclude coverage, it would be wise for franchisees to implement binding arbitration and prohibit class action (both litigation and arbitration). These are expensive suits to defend: even a frivolous suit will cost upward of $10,000 plus the cost of a "nuisance value" settlement.

This week, some franchisees are heartened by the pending appointment of Prof. David Weil to the Labor Department's Wage & Hour division. This is because of the belief that Weil will implement regulations which will recast the zor-zee relationship, and also make zors liable for wage and hour violations at franchised outlets. Before zees get too carried away, it is worth remembering that Weil's primary focus is likely to be on fast-food employers.

Horton is a reminder of the wide-ranging power of the NLRB, and also a reminder that the agency exercises its power by means of regulation. The IFA's media campaign against Prof. Weil's appointment won't serve as more than a speed bump now that the filibuster is dead, but it does illustrate that the Labor Department itself has bureaucrats who also have broad regulatory powers.

The degree to which the NLRB and Labor Department will work to the detriment of business owners over the coming two years is likely to be primarily cabined by the judiciary, which at the trial court level is often understanding of business needs. But if there is a leftward tilt on the DC Circuit (a likely outcome of the new judicial appointments), and/or if the administration pushes to get Supreme Court review of decisions such as Horton, business owners may have to rely on the outcome of the November elections to get legislative redress.


D.R. Horton, Inc. v. NLRB, No. 12-60031 (5th Cir. Dec. 3, 2013)

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Corbin is the online pen name of a contracts aficionado who needs to get a better hobby.

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