Mandatory Arbitration Agreement with Class Action Waiver Violates NLRA as Supervisor Alleged: NLRB | Practical Law

Mandatory Arbitration Agreement with Class Action Waiver Violates NLRA as Supervisor Alleged: NLRB | Practical Law

In Chesapeake Energy Corporation, the National Labor Relations Board (NLRB), applying D.R. Horton and Murphy Oil USA, found that a supervisor's mandatory arbitration agreement with class action waiver violates Section 8(a)(1) of the National Labor Relations Act (NLRA) because employees would reasonably construe it as prohibiting them from filing unfair labor practice (ULP) charges with the NLRB and from pursuing all employment-related claims on a collective or class basis in all forums.

Mandatory Arbitration Agreement with Class Action Waiver Violates NLRA as Supervisor Alleged: NLRB

by Practical Law Labor & Employment
Published on 12 May 2015 • USA (National/Federal)
In Chesapeake Energy Corporation, the National Labor Relations Board (NLRB), applying D.R. Horton and Murphy Oil USA, found that a supervisor's mandatory arbitration agreement with class action waiver violates Section 8(a)(1) of the National Labor Relations Act (NLRA) because employees would reasonably construe it as prohibiting them from filing unfair labor practice (ULP) charges with the NLRB and from pursuing all employment-related claims on a collective or class basis in all forums.
On April 30, 2015, the panel (Board) heading the NLRB's judicial functions found in Chesapeake Energy Corporation, that under D.R. Horton and Murphy Oil USA, the employers' mandatory arbitration agreement with class action waiver violates Section 8(a)(1) of the NLRA because employees would reasonably construe it as prohibiting them from filing unfair labor practice (ULP) charges with the NLRB and from pursuing all employment-related claims on a collective or class basis in all forums.
The charging party alleging the arbitration agreement violated the NLRA was a statutory supervisor of one respondent who was not eligible for individual relief under the NLRA. Nevertheless, the Board ordered the employers to rescind or revise their arbitration agreement in all of their forms and inform all current and former statutory employees who signed one that their agreements had been rescinded or revised in identified ways.
(362 N.L.R.B. slip op. 80 (Apr. 30, 2015).)

Background

Chesapeake Operating (Chesapeake), a wholly-owned subsidiary of co-respondent Chesapeake Energy, has maintained an "Arbitration Agreement and Dispute Resolution Policy" (Agreement) since July 2011. Chesapeake employees must sign the Agreement as a condition of employment. The Agreement states:
  • That the Agreement is "[m]andatory . . . [and] requires binding arbitration to resolve all disputes between the Employee and the Company including any such disputes which may arise out of or relate to employment."
  • That "Claims Covered" by the Agreement include "discrimination, harassment or retaliation claims whether under federal or state law," and states that employment claims cognizable under numerous specified federal statutes are covered by the Agreement. Among the specified statutory claims are those under the "National Labor Relations Act."
  • In a paragraph titled "No Class or Collective Actions Permitted," that:
Employee agrees that he/she shall have no right or authority for any dispute to be brought, heard or arbitrated as a class or collective action, or in a representative or a private attorney general capacity on behalf of a class of persons or the general public. No class, collective or Agreement representative actions are thus allowed to be arbitrated . . . and Employee agrees that he/she must pursue any claims that they may have solely on an individual basis through arbitration.
The charging party was a supervisory employee of Chesapeake, who signed the Agreement as required on July 19, 2011. He filed an initial ULP charge against Chesapeake in March 2013, and an amended charge against both Chesapeake and Chesapeake Energy in July 2013. An NLRB administrative law judge (ALJ) held that:
  • Chesapeake Energy’s maintenance of a mandatory arbitration policy prohibiting employees from filing ULP charges with the Board violates Section 8(a)(1) of the NLRA.
  • The arbitration policy did not separately violate Section 8(a)(1) by requiring employees to waive their Section 7 rights to engage in class or collective employment actions in all forums. D.R. Horton could not be reconciled with the Supreme Court's holding in American Express Co. v. Italian Colors Restaurants (357 N.L.R.B slip op. 184 (Jan. 3, 2012); 133 S. Ct. 2304 (June 20, 2013)).

Outcome

Applying D.R. Horton and Murphy Oil USA (361 N.L.R.B. slip op. 72 (Oct. 28, 2014)), a three-member Board panel (Chairman Pearce and Members Hirozawa and Johnson):
  • Noted that:
    • the Board generally finds language in an arbitration agreement requiring employees to resolve all employment disputes through arbitration unlawfully overbroad because employees would reasonably believe that the agreement impliedly restricts their rights to file an NLRB ULP charge or access the Board's processes (U-Haul Co. of California, 347 N.L.R.B. 375, 377– 378 (2006); see also Murphy Oil);
    • the NLRB's rules and regulations permit "any person" to file a ULP charge, not just employees who are protected by the NLRA and entitled to its remedies (29 C.F.R. § 102.9; 29 U.S.C. § 152(3));
    • Board remedial orders in ULP cases derived from ULP charges by non-statutory employees, such as charges filed by supervisors (see 29 U.S.C. § 152(11)) are limited to remedying harms against employees of the respondents entitled to relief under the NLRA; and
    • where an employer is alleged to have unlawfully maintained an employment agreement that violates Section 8(a)(1) of the NLRA, the Board finds the ULP charges timely under Section 10(b) of the NLRA if the charges are filed within six months of when that agreement was last effective. The charge need not be filed within six months of when the agreement was first signed (29 U.S.C. § 160(b); see, for example, Cellular Sales of Missouri, LLC, 362 N.L.R.B. slip op. 27 (Mar. 16, 2015) and Legal Update, NLRB Pans Compensation Agreement Provision Requiring Arbitration of All Employment Disputes).
  • Found that:
    • employees would reasonably construe the Agreement as prohibiting their filing of ULP charges with the NLRB or accessing the NLRB's processes;
    • the Agreement's express inclusion of NLRA claims among claims that employees must submit to arbitration was expressly unlawful and worse than the implied Section 8(a)(1) violations found in U-Haul of California and its progeny; and
    • the ULP charges were timely even though they were filed nearly two years after the charging party signed the Agreement.
  • Unanimously held that:
    • Chesapeake's parent company was liable for any ULPs flowing from the Agreement because the Agreement stated that it was one of the companies to which the Agreement's terms applied and the complaint alleged, and the parties stipulated that the parent company unlawfully maintained the Agreement for its employees.
    • Chesapeake and any entity listed among the "Companies" to which the Agreement applied would be required to provide the relief and take the affirmative actions in the Board's order as to affected NLRA-protected employees.
  • Ordered, among other things, that the respondents and companies affected by the maintenance of the invalid portions of the Agreement:
    • cease and desist from maintaining the unlawful Agreement;
    • rescind the unlawful arbitration terms in the Agreement in all of its forms or revise the Agreement and reissue it without the invalid terms; and
    • notify all current and former employees who were required to sign the Agreement that it was rescinded or revise and reissue it without the invalid terms.
A majority (Chairman Pearce and Member Hirozawa):
  • Noted that:
    • the right to engage in collective legal action is the core substantive right protected by the NLRA (D.R. Horton);
    • the Supreme Court did not reach the exact issue in American Express that the Board reached and decided in D.R. Horton; and
    • In Murphy Oil, the Board reviewed and found inapposite post-D.R. Horton Supreme Court precedent interpreting class action waivers under the Federal Arbitration Act, including American Express.
  • Found that the Agreement was worse than the agreements in D.R. Horton or Murphy Oil because it explicitly prohibited employees from pursuing employment-related claims, including claims under the NLRA, through class or collective actions or otherwise concertedly with other employees.
  • Ordered all of the same relief and affirmative actions required unanimously to remedy the invalid mandatory arbitration of employment disputes provisions for the class action waiver components of the Agreement based on D.R. Horton and Murphy Oil.
Member Johnson dissented from the majority's conclusions that the Agreement violated the NLRA by preventing employees from pursuing class or collective actions and referenced his dissent for the reasons he stated in is Murphy Oil dissent.

Practical Implications

Chesapeake Energy Corporation serves as a reminder that:
  • Supervisors and other persons who have no rights under the NLRA may file ULP charges.
  • Although supervisors may not be entitled to relief under the NLRA, the Board may use their ULP charges and employment agreements and policies used by employers for supervisors and NLRA-covered employees as springboards for reviewing and invalidating those agreements and policies effective for NLRA-covered employees and former employees.
  • If an invalid agreement defines the company broadly to include related parent, subsidiary or affiliated entities, the Board may attempt to order all parties to the agreements it holds invalid to rescind them or revise them concerning NLRA-covered former and current employees.
UPDATE: A panel of the US Court of Appeals for the Fifth Circuit denied enforcement of the Board’s ruling on the class action waiver in the arbitration agreement while enforcing other parts of the Board’s order in an unpublished opinion (Chesapeake Energy Corp. v. NLRB, (5th Cir. Feb. 12, 2016)).

UPDATE

In Epic Systems Corp. v. Lewis, the US Supreme Court held that arbitration agreements with class and collective action waivers are not prohibited under Section 7 of the NLRA and must be enforced as written under the Federal Arbitration Act (FAA). The decision invalidates the NLRB's analysis in D.R. Horton and Murphy Oil on which this decision relies and therefore abrogates much of the analysis in this case (( (U.S. May 21, 2018); see Legal Update, SCOTUS: Arbitration Agreements with Class Action Waivers Must Be Enforced as Written, and NLRA Does Not Command Otherwise and Article, Expert Q&A on Class Action Waivers in the Employment Context.)