Employment Law Daily Unanimous NLRB holds arbitration agreement interfered with employees’ right to file Board charges
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Friday, June 21, 2019

Unanimous NLRB holds arbitration agreement interfered with employees’ right to file Board charges

By Ronald Miller, J.D.

In view of the congressional command that the Board’s power to prevent unfair labor practices shall not be affected by other means of adjustment that may be established by agreement or law, the Board held the FAA does not authorize agreements that interfere with an employee’s right to file Board charges.

Under the standard set forth in Boeing Co ., a four-member panel of the NLRB unanimously found an employer violated NLRA Section 8(a)(1) by maintaining a “Mediation and Arbitration Agreement.” The NLRB found that the agreement restricted access to the Board and its processes, that the potential impact on NLRA rights was profound, and that no legitimate employer interests justified it. Although the arbitration agreement didn’t explicitly prohibit employees from filing charges with the Board, when reasonably interpreted, it restricted the filing of charges and interfered with employees’ Section 7 rights (Prime Healthcare Paradise Valley, LLC, June 18, 2019).

Arbitration agreements. On April 22, 2016, the NLRB found that the employer violated Section 8(a)(1) by maintaining and enforcing its “Mediation and Arbitration Agreement” and “Mutual Agreement to Arbitrate.” Applying D.R. Horton and Murphy Oil USA, Inc, the Board determined that the agreements unlawfully required employees, as a condition of their employment, to waive rights to pursue class or collective actions involving work-related claims in all forums, whether arbitral or judicial. The Board also found that the “Mediation and Arbitration Agreement” violated the Act on the basis that employees reasonably could construe it to restrict access to the Board’s processes.

The employer petitioned for review by the D.C. Circuit, but the appeal was held in abeyance pending the Supreme Court’s resolution of Lewis v. Epic Systems Corp.—whether employer-employee agreements that contain class and collective action waivers and require individualized arbitration violate Section 8(a)(1). On May 21, 2018, the Supreme Court issued its opinion in Epic Systems Corp. v. Lewis, holding that such agreements do not violate Section 8(a)(1).

On July 3, 2018, the D.C. Circuit granted the employer’s petition for review and denied the Board’s cross-application for enforcement with respect to the portion of the Board’s order governed by Epic Systems and remanded the remainder of the case. The Board accepted remand.

Access to Board processes. The only remaining issue was whether the “Mediation and Arbitration Agreement” unlawfully restricts access to the Board and its processes. In its prior decision, the Board resolved this issue under the analytical framework set forth in Lutheran Heritage Village-Livonia. In Lutheran Heritage, the Board held that an employer violates Section 8(a)(1) if it maintains a facially neutral rule that employees “would reasonably construe . . . to prohibit Section 7 activity.

However, in Boeing Co ., the Board overruled the “reasonably construe” prong of the Lutheran Heritage standard and held that when it considers a facially neutral policy, rule or handbook provision that, when reasonably interpreted, would potentially interfere with the exercise of NLRA rights, the Board will evaluate two things: (i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule.

Balancing test. In conducting this evaluation, the Board will strike a proper balance between the asserted business justifications and the invasion of employee rights in light of the Act and its policies, viewing the rule or policy from the employees’ perspective.

The NLRB has long held that an employer violates Section 8(a)(1) if it restricts an employee’s right to file charges with the Board, including restrictions contained in arbitration agreements. Nothing in the Supreme Court’s decision in Epic Systems disturbed this longstanding precedent. The Court recognized that the Federal Arbitration Act’s requirement that arbitration agreements be enforced according to their terms may be “overridden by a contrary congressional demand.”

While the Court in Epic Systems rejected the Board’s holding that the NLRA prohibits individual arbitration agreements containing class- and collective-action waivers, it did not address whether the Act prohibits agreements that restrict employees’ access to the Board or its processes. Here, the Board ruled that the NLRA does prohibit such agreements.

Application of Boeing standard. An arbitration agreement that explicitly prohibits the filing of claims with the Board or, more generally, with administrative agencies must be found unlawful. However, where an agreement does not contain such an explicit prohibition, it is facially neutral, and the standard set forth in Boeing applies. Under that standard, the Board must first determine whether that agreement, “when reasonably interpreted, would potentially interfere with the exercise of NLRA rights.” If it does, the Board will proceed to analyze the rule under Boeing’s balancing test, weighing the agreement’s potential interference with Section 7 rights against the employer’s legitimate business justifications.

Applying these principles to the employer’s “Mediation and Arbitration Agreement,” the Board found that it violated Section 8(a)(1). Although the agreement did not explicit prohibit charge filing (or the exercise of Section 7 rights), it does, when reasonably interpreted, interfere with the exercise of the right to file charges with the Board. To begin with, the agreement requires that “all claims or controversies for which a federal or state court would be authorized to grant relief” be resolved by binding arbitration. A federal appeals court is authorized to grant relief for claims arising under the NLRA. Moreover, federal district courts are authorized to grant interim injunctive relief for claims arising under the Act. Thus, the Board found that the agreement, when reasonably interpreted, restricted the filing of charges with the Board.

Employer justification. Next, the Board balanced the “nature and extent of the potential impact” of the agreement on Section 7 rights with any legitimate justification associated with the agreement. Here, the Board found that, as a matter of law, there is not and cannot be any legitimate justification for provisions in an arbitration agreement that restricts employees’ access to the Board or its processes. Consequently, finding no legitimate justification outweighed the adverse impact of the provisions in the “Mediation and Arbitration Agreement” on employee rights and the administration of the NLRA, the Board concluded that the agreement was unlawful.

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