MVA Litigation

The U.S. Supreme Court settled the long-standing dispute regarding the viability of class arbitration waivers in employment contracts with its determination in Epic Systems Corp. v. Lewis, 584 U. S. ____ (2018) that they indeed are enforceable, contrary to the position taken by the National Labor Relations Board (NLRB). But that did not close the book on all questions regarding employment agreement arbitration clauses, nor did it mean that the NLRB would resolve remaining questions regarding the limits on their enforceability in favor of the employer. While class waivers and related attempts to compel individual arbitration are now clearing hurdles at the NLRB, the agency has issued several decisions invalidating arbitration agreements based on the breadth of the claims employees are required to arbitrate. Applying the newer analytical framework for analyzing workplace policies established in The Boeing Company. 365 NLRB No. 154 (12/14/2017), the NLRB is reaffirming its position that arbitration agreements must permit, and not discourage, employees to file actions before the agency. So, where have arbitration clauses been falling short?

It’s All in How You Say It

Recent NLRB decisions bring into focus the importance of defining the types of claims that are/are not subject to a binding arbitration agreement in the first instance. A savings clause or exclusion clause that is meant to carve out claims that are not covered by an arbitration agreement may be legally insufficient if it is too vague regarding the employee’s ability to pursue proceedings before the NLRB. Everglades College d/b/a Keiser University and Everglades University. 368 NLRB No. 123 (11/27/2019), Beena Beauty Holding, Inc. d/b/a Planet Beauty. 368 NLRB No. 91 (10/08/2019), and Cedars-Sinai Medical Center. 368 NLRB No. 83 (09/30/2019) provide several examples of agreements that were found to violate the National Labor Relations Act (NLRA) due to deficient savings or exclusion clauses. These cases can be contrasted with Briad Wenco, LLC d/b/a Wendy's Restaurant. 368  NLRB No. 72 (09/11/2019), in which the NLRB found the savings clause adequate to render the agreement enforceable. Going beyond savings and exclusion clauses, the recent decision in Kelly Services, Inc.. 368 NLRB No. 130 (12/12/2019) shows that even explicitly permitting claims before the NLRB will not guarantee an arbitration agreement’s survival if substantial restrictions also are placed upon doing so. We discuss the savings/exclusion clause cases in more detail below. We discuss Kelly in a separate post.

The Standard by Which an Employment Policy is Measured: Boeing & Arbitration of Employment-Related Claims

The NLRB applies its Boeing standard to analyze whether facially neutral employment policies and rules violate the NLRA. Boeing established a new standard to evaluate facially neutral rules “in such a way to 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.” Under Boeing, if a facially neutral policy “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.” The Board decided that the Boeing standard would be applied retroactively to all pending cases in any stage.  

Mid-last year, the NLRB illuminated what Boeing means for arbitration of employment-related claims. In Prime Healthcare Paradise Valley, LLC, 368 NLRB No. 10 (06/18/2019), the NLRB concluded that, “as a matter of law, there is not and cannot be any legitimate justification for provisions, in an arbitration agreement or otherwise, that restrict employees’ access to the Board or its processes.” Accordingly, agreements that restrict employees’ access to the NLRB and its processes violate Section 8(a)(1) of the NLRA, and it is unlawful for an arbitration clause to explicitly prohibit filing claims before the NLRB or administrative agencies. In the absence of an explicit prohibition, the question is whether the provisions of the arbitration agreement at issue, “taken as a whole,” make arbitration the exclusive forum for resolving employment disputes? If the answer is yes, the agreement will be found to violate the NLRA.

Employees Cannot Be Left to Divine the Law

The arbitration clauses in Everglades College, Beena, and Cedars-Sinai did not explicitly prohibit the filing of claims with the NLRB. But they did not explicitly exclude claims arising under the NLRA from the claims covered by the agreement either. The NLRB found a problem with the language in these agreements because a reasonably objective employee would interpret them to mean that all claims, including claims arising under the NLRA, must be resolved via arbitration and that they do not have any recourse before the NLRB. The agreements in Cedars-Sinai and Everglades College had clauses that excluded claims “preempted by federal labor laws” or “where specifically prohibited by law,” yet the NLRB found them insufficient to save them. The Board noted that when applying Boeing to arbitration agreements, “[v]ague savings clauses that would require employees to ‘meticulously determine the state of the law’ themselves are likely to interfere with the exercise of NLRA rights.” The Board found that the language in the agreements, “when reasonably interpreted under Boeing’s objective reasonable employee standard, plainly makes arbitration the exclusive forum for the resolution of statutory claims arising under the Act.” The NLRB found it “unlikely that such an employee would be familiar with the legal doctrine of preemption, let alone what actions and claims are preempted by federal labor laws,” and the reasonable employee would be left “in the dark as to what is ‘specifically prohibited by law.’”

The Beena agreement did not have a savings or exclusion clause with vague language like the other two, but the NLRB felt that several aspects of the agreement worked together to interfere with employees’ access to the Board and its processes. The Board concluded that broad language stated in all capital letters in the agreement regarding giving up rights to trial and appeal and agreeing to submit all claims to binding arbitration could be reasonably interpreted as a waiver of administrative rights in addition to trial rights. The agreement had no exception for filing claims before the NLRB. And the agreement explicitly excluded workers compensation and unemployment compensation benefits claims, but not others. The NLRB found that the agreement “plainly make[s] arbitration the exclusive forum for the resolution of all claims except for workers compensation and unemployment benefits, including claims arising under the [NLRA].”

For a savings clause that will survive the NLRB’s scrutiny we can look to Briad, in which the Board held that the agreement could not be reasonably understood to potentially interfere with the employee’s NLRA rights. The agreement stated that "[n]othing in this Agreement shall be construed to prohibit any current or former employee from filing any charge or complaint or participating in any investigation or proceeding conducted by an administrative agency, including but not limited to . . . the National Labor Relations Board.” Even though the agreement did not explicitly reference claims under the NLRA, the Board found it lawful “[b]ecause the agreements are explicit in informing employees that there is ‘nothing’ in them that should be read as preventing employees from accessing the Board, and this language is sufficiently prominent within the agreements.”

In each instance of an offending agreement, the NLRB required the employer to rescind or revise the agreement and to notify all current and former employers who may be subject to the agreement, through various channels, that the employer was deemed to have violated the NLRA and that the agreement was to be revised/rescinded. For companies maintaining alternative dispute resolution agreements with employees, it may be prudent to review the language and status of those agreements with counsel.