The U.S. Fifth Circuit Court of Appeals in New Orleans has rejected a National Labor Relations Board (NLRB) ruling stating that the Mandatory Arbitration Clause violated the National Labor Relations Act (NLRA). Employers can now require workers to waive legal arbitration-rights in the event of an employer-employee dispute under risk of employment termination.

In 2008, one non-union employee, Michael Cuda, of the construction company D.R. Horton Inc., pursued a claim against his employer under the Fair Labor Practices Act. The claim alleged that several workers were misclassified as exempt from federal overtime law protection. However, two years prior, the company made all employees sign a Mutual Arbitration Agreement (MAA) which dictated that workers must file claims individually and enforced the MAA against the collective misclassification claim.

After Horton responded to the initial lawsuit with the MAA, Cuda then filed a second charge under the NLRA. The second lawsuit alleged that the waiver violated fair labor practices. The NLRB heard the case and ruled in Cuda’s favor. The board ruled that Horton violated the NLRA by trying to stifle “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The board also concluded that the MAA’s murky language could cause employees to think they were barred from pursuing unfair practice claims.

Last month, the Court of Appeals overturned the NLRB’s decision, citing the Federal Arbitration Act of 1925. According to the savings clause of the Federal Arbitration Act (FAA), arbitration agreements are enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” The court ruled that the savings clause is not applicable to the board’s interpretation because the NLRA doesn’t “contain a congressional command exempting the statute from application of the FAA, the Fifth Circuit held that Horton’s arbitration agreement must be enforced according to its terms.”

Since arbitration agreements rid court hearings as an option for dispute resolution, the main option is mandatory binding arbitration. In mandatory binding arbitrations, the only parties involved are the company, claimant, and a third party arbitrator. The proceedings themselves usually take place in company conference or board rooms. Arbitrators are not required to have legal training, and normal court operations, like evidence and procedure, don’t apply. The proceedings are usually kept secret with no public access and arbitrators provide no written opinions, but are still upheld by the law even if the decision is legally incorrect.

Companies have near-complete control of the arbitration process. Arbitrators are often contracted by the companies. This puts the claimant at a vast disadvantage, as the companies become familiar with which arbitrators rule in the company’s favor. Since the decision is binding, claimants have no right to appeal. Companies have also entered into partnerships with arbitration firms where company-favored rulings are rewarded financially.

In 2008, the city of San Francisco sued a major arbitration company. The city alleged that the company was running an “arbitration mill” for debt collection companies. The suit alleged that the National Arbitration Forum ruled in favor of consumers in less than 0.2 percent of cases from January 2003 to March 2007. This small amount of consumer victories happened when the consumer filed against the company. When the company filed against the consumer, companies won 100 percent of disputes.

Josh is a writer and researcher with Ring of Fire. Follow him on Twitter @dnJdeli.