Limiting Backpay to Arbitration Proceedings is Unlawful, According to NLRB

In Kelly Services, the National Labor Relations Board concluded that an arbitration agreement provision prohibiting employees from receiving backpay or other monetary compensation through NLRB proceedings is unlawful.

Employees were required to execute an arbitration agreement as a condition of their employment. The agreement permitted employees to file charges with the Board and other administrative agencies, but mandated that all claims for monetary relief be pursued through arbitration. Consequently, the agreement prohibited employees from obtaining backpay or other monetary relief through NLRB remedies.

As the Board set forth in the 2017 case, The Boeing Company (which we discussed in detail in a December 2017 E-lert), workplace rules are divided into three categories, depending on whether they (1) are lawful, (2) warrant individualized scrutiny, or (3) are unlawful under the National Labor Relations Act. The Board applied Boeing to find that the provision restricting monetary relief to arbitration was an unlawful Category 3 rule. First, the Board reasoned that the provision unlawfully restricts employees’ right to access to the Board and its processes by prohibiting employees from receiving backpay and other monetary compensation through Board proceedings. By making it impossible for employees to obtain a monetary remedy from the Board, the agreement disincentivizes employees from filing a Board charge in the first place. Second, the provision was an attempt to limit the Board’s exercise of its statutory powers to remedy unfair labor practices, including the provision of backpay.

The lesson here is that employers should avoid arbitration agreement language restricting an employee’s right to monetary relief to arbitration proceedings. We note that this language also frequently appears in severance agreements. There is a critical distinction, however. In that context, although an employer must permit the employee to file charges with the Board and other federal agencies (like the Equal Employment Opportunity Commission), we believe that the employer may require the employee to waive the right to recover monetary relief arising from such charges. In that instance, the employee is receiving monetary benefits (i.e. severance pay) in lieu of such relief.