In Mandatory Arbitration Provisions, Specificity is Key

Mar 17, 2020 | Blog
Partner

or employers affected by legislation regarding the enforceability of mandatory arbitration provisions in various employment documents, two (2) recent decisions by the National Labor Relations Board (“NLRB” or “Board”) are worth noting: Countrywide Financial Corporation, 369 NLRB No. 12 (January 24, 2020) and Bloomingdale’s, Inc., 369 NLRB No. 8 (January 21, 2020).

It is common for employers to require employees to agree to forego federal and/or state court litigation to resolve employment disputes via mandatory arbitration. These provisions can be found in employment agreements, separation agreements or various post-hire policies and forms. The obvious intent is to avoid costly litigation, including that associated with class actions. Under the Obama Board, these agreements/policies were challenged under two (2) theories: 1) prohibiting class actions violated employees’ Section 7 rights under the National Labor Relations Act (”Act”) to engage in “protected concerted activities”; and 2) similarly, prohibiting access to NLRB procedures violated employees’ Section 7 rights. With respect to the  former, the Supreme Court has found that an employer may prohibit class actions. It is the access to the NLRB processes that can still be of concern.

In Countrywide, employees were forced to agree to arbitrate all employment disputes as the exclusive remedy. Countrywide argued that the following provision in the arbitration agreement should save them: “Nothing in this Agreement shall be construed to require arbitration of any claim if an agreement to arbitrate such claim is prohibited by law.” One would think that this language would be sufficient to safeguard employee rights.  Not so, said the NLRB!  In so ruling, the Board reasoned that the typical employee does “not generally carry law books” and, thus, will not necessarily be able to interpret what “prohibited by law” might entail.  What the Board did approve, however, is Bloomingdale’s exclusionary language: “Claims by Associates…under the National Labor Relations Act are…not subject to Arbitration.” Bottom line: it was Bloomingdale’s specificity that saved it.

Since these cases have been decided by the Trump Board, a decidedly much more business-friendly Board than that under the last administration it is likely these cases will stand the test of time.

What does this mean for employers?  It is important to note that, to the extent an employer requires arbitration of all employment disputes, the foregoing caveats do not apply with respect to supervisory employees and above i.e., those falling within the definition of supervisor under Section 2(11) of the National Labor Relations Act, who are not protected by that law. However, in this regard, employers would be wise to understand that simply giving an employee a fancy title will not suffice.  There are more cases litigated under Section 2(11) than any other section of the Act.

So, applying mandatory arbitration clauses to C level employees is fine. It is when an employer ventures too far down the totem pole that troubles will arise.

If you have any questions regarding mandatory arbitration enforceability or employment law in general, please contact Phil Mortensen at pmortensen@bartonesq.com.