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NLRB Raises the Bar on Clarity of Employee Arbitration Agreements

Today, more than half of private employers without union-represented employees use binding arbitration agreements to resolve labor disputes, according to the Economic Policy Institute.

Over the years, federal courts have generally rejected legal challenges to arbitration agreements in employment, though they have established some safeguards. Last year, a U.S. Supreme Court decision, Epic Systems Corp. v. Lewis, was a major victory for employers that use arbitration agreements. The Court ruled that arbitration agreements could preempt class action litigation.

Now there's a new twist in arbitration agreement legal requirements: A new ruling applies to employers that are accused of interfering with employees' rights to form a labor union and declare that the matter must be settled by arbitration. Enforceability of those arbitration agreements depends not only on what's covered in the fine print, but also what's left out or implied.  

Role of the NLRB

Challenges to arbitration agreements sometimes are based on employee protections under the National Labor Relations Act (NLRA). This landmark New Deal legislation, adopted by Congress in 1935, was designed to bolster labor unions. In turn, the NRLA created the National Labor Relations Board (NLRB) to help enforce provisions of the law.

The NLRB addresses allegations of NLRA violations coming from employees. It receives more than 20,000 complaints each year "covering a range of unfair labor practices described in Section 8 of the Act," according to the board's website.

Under the NLRA, it's unlawful for an employer to "interfere with, restrain, or coerce employees in the rights guaranteed." Furthermore, the law says that employees "shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, or engage in other concerted activities" to achieve those outcomes.

"Concerted activities" can include discussions of grievances that could lead to a movement to start a union. Thus, being fired for unionizing could give rise to an NLRB claim.

If the NLRB rules in favor of one or more employees, it can't assess penalties against employers. But it can require employers to make employees "whole" again, for example, by reinstating back pay for employees who were wrongly terminated in conjunction with union organizing activities, as well as requiring employers to post signs around the workplace, promising not to violate the law again. The NLRB can also ask a federal court to impose a temporary injunction on an employer to halt a practice until the issue has received a full hearing.

Arbitration Connection

The connection between the NLRB and the legality of arbitration agreements is that, while arbitration agreements can preempt employees from taking most complaints to a federal court, they can't block employees from appealing to the NLRB with an unfair labor practice claim under NRLA Sec. 8.

Such a claim was at the heart of a recent NLRB case filed by employees of Prime Healthcare Paradise Valley, a company that operates hospitals across the United States. The company's mediation and arbitration agreement (M&AA) required its employees to "consent to the resolution by binding arbitration of all claims or controversies for which a federal court or a state court would be authorized to grant relief…"

The M&AA also listed examples of potential claims that employees might make, but were blocked under the agreement. And it stated that the agreement didn't cover disputes involving state benefit issues — such as unemployment insurance and workers compensation — which aren't covered by federal law.

Ultimately, the NRLB rejected the M&AA, because it found several problems with the agreement's language. Specifically, when any M&AA that doesn't directly state that employees don't have access to the NLRB (or other appropriate non-court entity), and is thus "neutral" on the matter, requires a determination must be made as to whether the agreement, "when reasonably interpreted, would potentially interfere with the exercise of NLRA rights."

Error of Omission

That could be the case if employees might wrongly conclude that they have no rights to pursue NLRA Sec. 8 claims unless there's an agreement that explicitly refers to those rights. Weighing the evidence, the NLRB concluded that many of Prime Healthcare's employees would draw that conclusion, and that the company lacked a "legitimate business justification" for failing to be explicit about employees' NLRB rights in its M&AA.

The NLRB concluded that employees might be misled by the M&AA's language, because it mentioned some dispute categories (workers comp and unemployment insurance claims) that weren't covered. However, the agreement failed to mention NLRA Sec. 8 claims, which also must be excluded under the law. The ruling concludes that, "Reasonably interpreted, taken as a whole," the M&AA could easily be seen as blocking employees' rights to take relevant complaints to the NLRB.

The board also pointed out the inaccuracy of the M&AA's implication that it could exclude employees from taking any claims to federal courts under any circumstance, since federal courts can play a limited role in NLRA violation allegation cases.

Got Arbitration Agreements?

Does your company require employees to accept an arbitration agreement? If so or if you're thinking about doing so in the future, it's important to fine-tune the language based on the NLRB's ruling in the Prime Healthcare case. It's better to be clear and explicit than to be vague and lacking in detail.

Also, be aware that the laws in some states limit the scope of arbitration agreements. Those limitations can affect the outcome of disagreements over arbitration agreements in some situations. Be sure you understand the laws in your state before asking employees to sign on the dotted line.

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