NLRB Weighs In On Arbitration Agreements

The National Labor Relations Board issued two decisions addressing the legality of arbitration agreements. The Board has previously held that arbitration agreements that explicitly prohibit the filing of charges with the Board, or with administrative agencies generally, violate the National Labor Relations Act. (We wrote about that here.)  In both cases, the Board analyzed a similar but distinct issue: whether employees would reasonably read an arbitration agreement to prohibit or restrict the filing of charges with the Board where the agreement did not explicitly restrict or prohibit the filing of charges with the Board. The Board utilized its now ubiquitous Boeing framework – under which work rules are divided into Categories 1 (lawful), 2 (requires individualized scrutiny), or 3 (unlawful) – to analyze the agreements.

Different Results: First, in Hobby Lobby Stores, Inc., the Board held that the arbitration agreement did not unlawfully restrict employee access to the Board and its processes. The agreement required that all employment-related disputes be arbitrated. The agreement specifically excluded benefit claims under unemployment or workers’ compensation laws. Additionally, the agreement included a “savings clause” that the parties “understand they are not giving up any substantive rights under federal…law (including the right to file claims with…government agencies).” While the agreement did not expressly state that employees retained the right to file charges with the Board, the Board held that an objectively reasonable employee would understand that the savings-clause language “permits the filing of a claim with any federal administrative agency, including the Board.” Thus, the employer did not violate the NLRA by maintaining the arbitration agreement.

In 20/20 Communications, however, the Board reached a different conclusion. There, the arbitration agreement provided that while an employee agreed to submit all employment disputes to arbitration, the employee did not “waive his or her right to file an administrative complaint with the appropriate administrative agency.” If the Hobby Lobby result was indicative, had the employer stopped there, the agreement likely would have passed muster with the Board. The agreement, however, went on to stay that the employee “knowingly and voluntarily waive[s] the right to file, or seek or obtain relief” seeking to recover or monetary damages or injunctive relief. The Board held that the reasonable employee would interpret this provision to prohibit the recovery of backpay or other monetary remedies that may be ordered by the Board, and thus the arbitration agreement interfered with employees’ access to the Board and its processes, and violated the NLRA. The Board reasoned that prohibiting the recovery of backpay or other monetary remedies ordered by the Board interferes with the Section 7 right of employees to utilize the Board’s processes.

Takeaways: Employers requiring arbitration of employment disputes should be mindful of these decisions. First, employers do not have to explicitly state that the arbitration requirement does not prohibit employees from filing charges with the Board (thought it may be a best practice to eliminate any doubt), provided the agreement states that the employee may file claims with government agencies. But arbitration agreements confining monetary relief to the arbitral process will be considered an unlawful prohibition or restriction to the Board’s processes, in violation of the NLRA.