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NLRB Takes New Tack in Opposing Arbitration Agreements

November 2013

By: James B. Sherman, Esq.

Despite the growing number of United States Supreme Court decisions favoring arbitration as a legitimate alternative to litigation, the National Labor Relations Board (NLRB) is continuing its attempt to play a major role in regulating arbitration agreements in the workplace. Those familiar with this issue may recall the controversial D.R. Horton decision, in which the NLRB attempted to declare arbitration agreements as violative of federal labor law if they prevented employees from bringing class-action lawsuits. The Board's rational in Horton was to equate class-action lawsuits with "concerted activities" protected under Section 7 of the National Labor Relations Act (NLRA) of 1947.

At least three U.S. Courts of Appeal have found the NLRB's decision in D.R. Horton to be an erroneous interpretation of the NLRA. More recently, on November 8, 2013, an Administrative Law Judge (ALJ) of the NLRB ruled in Chesapeake Energy Corp. that the Horton decision can no longer "be sustained" in light of the Supreme Court's recent decision in American Express Co. v. Italian Colors Restaurants, which favored an arbitration clause that barred class-action claims. However, the ALJ in Chesapeake went on to say that the arbitration provision in question still violated federal labor law for an entirely different reason. The ALJ found the agreement to be unlawful because it precluded employees from exercising their right to go to the NLRB with their claims.

Many employers favor agreements with their employees that mandate arbitration to resolve any disputes arising out of their employment. The NLRB's attempt to invalidate such agreements through the questionable rationale of its D.R. Horton decision appears to have been a flop. The recent Chesapeake ruling, by contrast, may rest on sounder legal theory supported by existing court decisions. Specifically, existing cases have held that severance agreements that bar or waive an employee's right to file a charge with the Equal Employment Opportunity Commission (EEOC) violate federal employment law. Therefore, it follows that arbitration agreements forcing employees to bring their work-related grievances solely to arbitration, thereby preventing employees from filing charges with the NLRB, the EEOC, etc. would be unlawful.

The good news is that there is a ready-made solution to/way around this problem. Just as management-side employment lawyers satisfy the EEOC issue by including language in severance agreements that allow employees to file charges, but waive any right of recovering any monetary award through the EEOC, similar language can be included in an arbitration agreement to solve the NLRB's newfound issue. True, the NLRB might choose to pursue claims and remedies available under the NLRA, but employees would be limited to any monetary recovery obtained in arbitration. Moreover, Board precedent that has been around for decades would require the NLRB to defer to arbitration and do nothing with any charge until after arbitration takes place - its so-called "deferral rule." For help determining whether arbitration is right for your company, or drafting/amending arbitration agreements to keep ahead of the many decisions coming out of the NLRB, the courts and other agencies, contact the experienced attorneys of Wessels Sherman.