Arbitration Policy Not Saved by Allowing Claims With Administrative Agencies that May Seek Relief on Group Basis: NLRB | Practical Law

Arbitration Policy Not Saved by Allowing Claims With Administrative Agencies that May Seek Relief on Group Basis: NLRB | Practical Law

In SolarCity Corporation, the National Labor Relations Board (NLRB) held that an arbitration agreement that permits employees to file claims with administrative agencies, but not with courts, violates the National Labor Relations Act.

Arbitration Policy Not Saved by Allowing Claims With Administrative Agencies that May Seek Relief on Group Basis: NLRB

by Practical Law Labor & Employment
Law stated as of 08 May 2020 • USA (National/Federal)
In SolarCity Corporation, the National Labor Relations Board (NLRB) held that an arbitration agreement that permits employees to file claims with administrative agencies, but not with courts, violates the National Labor Relations Act.
On December 22, 2015, in SolarCity Corporation, the panel (Board) heading the NLRB's judicial functions held in a 3-1 decision that an arbitration agreement that permits employees to file claims with administrative agencies including the NLRB, the EEOC, and the US DOL, but prohibits filing claims in court, violates Section 8(a)(1) of the NLRA. The Board majority applied its holdings in D.R. Horton and Murphy Oil USA, finding that having access to administrative agencies is not equivalent to having access to judicial forums, and that employees would reasonably construe the arbitration policy as interfering with their access to NLRB processes and their ability to exercise their rights under the NLRA. (363 NLRB No. 83 (Dec. 22, 2015).)

Background

The employer, a solar energy company, maintained an agreement providing that:
  • Any employment-related disputes would be resolved through binding arbitration "and not by court or jury trial."
  • Employees were:
    • prohibited from bringing class or collective actions (the class action waiver); and
    • permitted to file claims with administrative agencies including the NLRB, the EEOC, and the DOL.
After an employee brought a wage and hour class action in California state court, the employer filed a petition to compel arbitration. The employee then filed a charge with the NLRB, and the NLRB General Counsel issued a complaint.
An administrative law judge (ALJ) found that the employer violated Section 8(a)(1) of the NLRA by maintaining and enforcing the agreement containing the arbitration policy and class action waiver. The employer excepted to the ALJ's decision.

Outcome

The Board majority (Chairman Pearce and Members Hirozawa and McFerran) held that:
  • An arbitration policy that prohibits employees from filing claims in court violates Section 8(a)(1) of the NLRA, even if the policy contains an exception permitting employees to pursue claims with administrative agencies that might pursue group claims on employees' behalf.
  • Permitting employees to file claims with administrative agencies does not meet the Board's requirement from its D.R. Horton and Murphy Oil decisions that employees must be able to pursue joint, class, or collective action claims in a judicial forum.
The Board majority noted that:
The Board majority found that:
  • The class action waiver in the employer's agreement coupled with the requirement that all employment-related disputes be resolved by arbitration and not by court action fell within the Board's D.R. Horton and Murphy Oil decisions by limiting employees to pursuing claims individually and only through arbitration.
  • The exception in the employer's agreement permitting employees to file claims with administrative agencies did not meet the requirement that employees have a judicial forum to pursue joint, class, or collective action claims.
  • Allowing employees to file actions with an administrative agency was not an effective or lawful substitute for allowing employees to file actions in court because:
    • certain employment-related claims are not within the scope of an administrative agency's authority;
    • administrative agencies have discretion to decide not to pursue employees' claims or to pursue those claims on the agencies' own terms outside the employees' control; and
    • an administrative agency is not a judicial forum capable of adjudicating employment-related claims.
  • In the wage and hour context, access to the DOL's Wage and Hour Division (WHD) is not equivalent to accessing a court because the WHD:
    • does not have any capacity to adjudicate alleged wage and hour violations;
    • merely investigates alleged wage and hour violations;
    • brings judicial actions in a small number of cases that it was unable to resolve through voluntary settlements or compliance agreements with employers; and
    • terminates employees' right to file suit if it brings its own lawsuit.
  • Employees would reasonably interpret the employer's agreement as interfering with their right to pursue NLRB charges. Despite the exception in the agreement permitting them to file charges with administrative agencies such as the NLRB, the agreement left employees with the impression that they would risk violating the agreement if they exercised their Section 7 rights because it:
    • expressly stated that "all" or "any" employment-related disputes must be arbitrated;
    • was vague and ambiguous about whether employees could pursue claims as a class or were instead required to pursue claims individually; and
    • would require specialized legal knowledge to recognize that the exception in the agreement permitted them to file NLRB charges.
Member Miscimarra dissented and echoed his dissents in prior Board decisions addressing arbitration agreements containing class action waivers, noting that:
  • The majority incorrectly applied the Lutheran Heritage test. The employer's agreement clearly stated that employees may file NLRB charges, and, therefore, the agreement's class action waiver could not be reasonably understood as prohibiting employees from filing such charges.
  • The Board lacks authority to dictate litigation procedures for non-NLRA claims and the NLRA does not create a substantive right for employees to insist on class or collective treatment of non-NLRA claims.
  • An agreement requiring waiver of class actions pertaining to non-NLRA claims does not infringe on any NLRA rights, and a large majority of courts have rejected the Board's position regarding agreements requiring the waiver of the right to bring a class action (see Murphy Oil USA, Inc. v. NLRB, (5th Cir. Oct. 26, 2015)).

Practical Implications

The NLRB's decision in SolarCity extends its decisions in D.R. Horton and Murphy Oil to arbitration agreements that allow employees to file claims with administrative agencies. According to the NLRB, agreements that prohibit employees from filing claims in court violate the NLRA and will not be rescued even by an express exception allowing for filing NLRB and other administrative agency charges.

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.)

UPDATE

On May 8, 2020, in Anderson Enterprises, Inc., the Board overruled its pre-Epic and pre-Boeing analysis of arbitration agreement savings clauses, including in SolarCity (369 N.L.R.B. No. 70 (May 8, 2020)).