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Vague, Generalized Exclusion Clause Language Cannot Salvage Unlawful Mandatory Arbitration Agreement: NLRB
Practical Law Legal Update w-023-8043 (Approx. 5 pages)
Vague, Generalized Exclusion Clause Language Cannot Salvage Unlawful Mandatory Arbitration Agreement: NLRB
by Practical Law Labor & Employment
| Law stated as of 02 Aug 2023 • USA (National/Federal) |
In Countrywide Financial Corp., the National Labor Relations Board (NLRB) held that vague exclusionary clause language that may be unclear to a reasonable employee concerning the status of National Labor Relations Act (NLRA) claims is insufficient to save a mandatory arbitration agreement that unlawfully restricted access to NLRB processes under Prime Healthcare and Boeing.
NOTE: See the UPDATE at the end of this resource for subsequent developments affecting this decision.
On January 24, 2020, in Countrywide Financial Corp., the panel (Board) heading the NLRB's judicial functions held that:
- Applying Prime Healthcare, the arbitration agreement, which stated that "[a]rbitration is the parties' exclusive remedy for covered claims," interfered with employee rights under the NLRA and fell within Boeing Category 3 (rules that the Board deems unlawful to maintain). The arbitration agreement did not explicitly prohibit the filing of an NLRB charge, but when reasonably interpreted under Boeing, unlawfully restricted access to the Board and its processes in violation of Section 8(a)(1) of the NLRA. (See Prime Healthcare Paradise Valley, LLC, 368 N.L.R.B. No. 10 (June 18, 2019); Boeing Co., 365 N.L.R.B. No. 154 (Dec. 14, 2017).)
- Applying the recent Board decision in Everglades, the exclusion clause in Section 3 of the arbitration agreement (which stated, "[n]othing in this Agreement shall be construed to require arbitration of any claim if an agreement to arbitrate such claim is prohibited by law") is too vague to salvage the agreement (see Everglades Coll. (Keiser Univ.), 368 N.L.R.B. No. 123 (Nov. 27, 2019)).
- An objectively reasonable employee would understand that the arbitration agreement did not apply where "prohibited by law," but for a reasonable employee lacking expertise, the language was vague and ambiguous concerning what was prohibited by law and whether the exclusion applied to NLRA violation claims (Everglades, 368 N.L.R.B. No. 123, slip op. at 3-4; Ingram Book Co., 315 N.L.R.B. 515, 516 n. 2 (1994)).
Whether characterized as an exclusionary clause (as in Everglades) or as a savings clause (as was argued in Countrywide), a vague provision stating arbitration is required "except where prohibited by law" is insufficient to save a mandatory arbitration agreement that would be unlawful under Prime Healthcare. A reasonable employee interpreting vague exclusionary clause or savings clause language cannot be expected to examine and understand the legality of employment arbitration rules and consequent application or exclusion of the arbitration rules to NLRB unfair labor practice litigation. (See Prime Healthcare, 368 N.L.R.B. No. 10, slip op at 3; Everglades, 368 N.L.R.B. No. 123, slip op. at 3-4).)
UPDATE
On August 2, 2023, a Board majority adopted a new burden-shifting standard for evaluating facial challenges to employer work rules that do not expressly restrict employees' protected concerted activity under Section 7 of the NLRA, overruling Boeing and the subsequent work rules decisions applying the categorical classification system articulated therein (Stericycle, Inc., 372 N.L.R.B. No. 113 (Aug. 2, 2023); for more information on this decision, see Article, The NLRB's New, Developing Standard for Assessing Lawfulness of Work Rules).