Mandatory Arbitration Provisions in Employment Agreements–Be Wary!

Aug 8, 2019 | Blog

Over the past 15-20 years, it has become a fairly standard practice for employers to include in employment agreements and/or offer letters a provision requiring the new employee to agree to resolve any and all employment disputes with the new employer through binding arbitration. The savings, in both time and money, to the employer are considerable. By accepting this term, the new employee is thereby waiving the right to pursue a court remedy and, necessarily, waiving the right to a jury by trial.  Most employees sign these agreements, knowing they, in actuality, have little choice if they want the job.  However, now employers would be prudent to consider these provisions very carefully.

On July 25, the National Labor Relations Board (“NLRB” or “Board”) handed down a decision that can change the playing field quite substantially. In Alorica, Inc., and its subsidiary/affiliate Expert Global Solutions, Inc., 368 NLRB No. 25 (July 25, 2019), the Board considered the following “Agreement to Arbitrate”, which employees were required to sign as a condition of employment:

All disputes, claims, or controversies arising out of or relating to your employment by the Company, the termination of your employment by the Company and/or this Offer Letter, and any claims or disputes as to the scope and enforceability of this arbitration agreement, shall be resolved exclusively by final and binding arbitration.

You and the Company agree that any dispute or controversy arising out of or in any way related to your employment, or the termination of your employment… will be resolved by final and binding arbitration as provided herein. You and the Company voluntarily and irrevocably waive any and all rights to have any such dispute decided in court or by a jury.

In the underlying decision by the Board’s Administrative Law Judge (“ALJ”), the ALJ found that, although no reference in the Agreement was made to the Board’s processes, an employee could reasonably interpret the arbitration language to prohibit the filing of an unfair labor practice charge with the NLRB, which would be a clear violation of Section 1(a) of the National Labor Relations Act (“Act”), the law which governs many employee rights in the private sector.  The Board has held in the past that facially neutral rules should be read from the perspective of the employee.  In affirming the ALJ’s decision in relevant part, the Board emphasized that, since the Agreement made arbitration the exclusive forum for resolving employment disputes, alternative remedies, such as filing an unfair labor practice with the NLRB, were prohibited.  Thus, the Agreement was unlawful.

Please note that the NLRB decision is binding on nearly all private sector employers until/unless overturned by a Court of Appeals.

What does this mean for employers who regularly include mandatory arbitration provisions in their employment agreements and/or offer letters?  This decision by the NLRB has bearing only to the extent those agreements/letters are applied to non-managerial/non-supervisory personnel, as managers and supervisors are not protected by the Act. However, it is extremely important to note that whether someone is actually a “manager” or “supervisor” within the meaning of the Act is one of the most litigated issues in labor law.

If you have questions about how the NLRB might view your employment agreements and/or offer letters, or would like some guidance in determining whether you have properly classified those employees you deem to be managerial and supervisory, please feel free to contact Phil Mortensen.