United States: National Labor Relations Board Determines Arbitration Agreement's Facially Neutral Waiver Violates Labor Law

Last Updated: September 5 2019
Article by Mary Beth Ricke

In Prime Healthcare Paradise Valley, LLC, 368 NLRB No. 10 (June 18, 2019), the National Labor Relations Board (Board) ruled that an arbitration agreement that required the employee to arbitrate all claims violated the National Labor Relations Act (NLRA) because it restricted the employee's access to the Board and its processes.

The arbitration agreement stated that the parties "hereby consent to the resolution by binding arbitration of all claims or controversies for which a federal or state court would be authorized to grant relief," and that the claims covered by the agreement "include, but are not limited to... claims for violation of any federal, state or other governmental constitution, statute, ordinance, regulation or public policy..."

The Board initially observed that any agreement that expressly prohibited employees from filing a charge would violate the NLRA. Because the arbitration agreement in this case did not explicitly prohibit the filing of a charge with the Board, however, the Board proceeded to evaluate its validity using the test developed in Boeing Co., 365 NLRB No. 154 (2017).

Under the Boeing test, the Board considers whether the agreement, reasonably interpreted, interferes with the exercise of NLRA rights and, if so, whether the potential interference outweighs the employer's legitimate business justification. As a result of this test, the Board places the provision into one of the following three categories: (1) lawful to maintain; (2) individualized scrutiny is required; and (3) unlawful to maintain.

After applying this Boeing test, the Board placed the arbitration agreement into Category 3 – unlawful to maintain. First, the Board determined that, reasonably interpreted, the agreement interfered with NLRA rights because, given its broad scope and the absence of an exclusion for Board charges, a reasonable employee would interpret it as prohibiting the employee from filing charges with the Board. The Board emphasized that the enforcement of the NLRA depends on the initiative of employees because the Board has no power to initiate complaints on its own. Second, the Board ruled that the agreement's interference with NLRA rights outweighed the employer's business justification as a matter of law because there is not and there cannot be any justification for provisions that restrict the employee's access to the Board or its processes, in arbitration or other agreements.

Notably, while the case was pending, the employer revised the arbitration agreement to include an explicit reservation of charge-filing rights under the NLRA. Still, the Board determined that the employer violated the NLRA based on the original language, which the Board found the employer never actually revoked. The Board also observed that adoption of the new agreement "did not eliminate the adverse effect upon employees' protective activities of its prior conduct."

Consequently, the Board ordered the employer to rescind the arbitration agreement containing the problematic waiver provision. The Board also ordered the employer to post a Notice written by the Board to inform the employer's employees that, among other things, the Board found that the employer violated federal labor law and that federal law provides employees with the right to form, join, or assist a union.

For employers, the key take-away is to ensure that arbitration agreements – along with other waivers of rights – preserve, or at least cannot reasonably be read as restricting, employees' access to the Board or its processes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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