Will Your Company Be Sued For An Unfair Labor Practice Because Of Its Arbitration Agreement?

For years, attorneys have counseled that the way to prevent costly class and collective action litigation with employees is to require the employees to execute arbitration agreements that only permit individual (as opposed to class) arbitration. The National Labor Relations Board (NLRB) argues that this violates the employees’ right to act collectively under the National Labor Relations Act (NLRA). The Federal Courts of Appeal for the Second, Fifth, Seventh, and Ninth Circuits disagree concerning the validity of the NLRB’s position.

Because of the circuit split, the class waiver issue is destined for Supreme Court review (if not in this case, then soon). Both the NLRB and Ernst & Young have petitioned for review of the Fifth Circuit’s most recent decision in NLRB v. Murphy Oil. The NLRB’s petition can be found here.

Here’s the question: If the Supreme Court agrees with the NLRB, will your company be sued for committing an alleged Unfair Labor Practice (ULP) to the extent that it has enforced an arbitration agreement that includes a class and collective action waiver? Maybe.

The NLRB’s position is that enforcement of a class waiver is a ULP, as follows:

the Board found that respondent committed an unfair labor practice by “requiring its employees to resolve all employment-related claims through individual arbitration, and by taking steps to enforce the unlawful agreements” in the FLSA collective action filed by Hobson and her co-employees.

(NLRB Cert. Petition p. 8.)

So, should you quickly abandon your current arbitration agreement? Probably not. Here is the NLRB’s flowchart of what happens when an employee files a ULP charge.

NLRB's Unfair Labor Practice Flow Chart
NLRB’s Unfair Labor Practice Flow Chart


Notably, this is not a typical lawsuit. The Board will engage in a lengthy administrative process during which it might order your company to abandon its class waiver and notify employees of the change. However, the NLRB generally cannot award money damages in ULP cases (although it can award back pay if your have dismissed an employee as part of an unfair labor practice). Thus, the potential cost of fighting the ULP is your own attorney’s fees, and you can decide to fight the charge or abandon the arbitration agreement when the issue arises. In the short run, monitor this issue, but wait and see how the Supreme Court reacts before making a decision about your current policy.

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