On January 20, 2016, the National Labor Relations Board expanded its rule that waivers of class actions in arbitration provisions are inherently a violation of employees’ Section 7 rights under the National Labor Relations Act. In Century Fast Foods, a Board majority held that an arbitration provision which did not expressly waive class grievances, but required use of a “confidential binding arbitration … for any claims that arise between me and [the company],” could reasonably be viewed by employees as prohibiting collective arbitration. The Board therefore held that the arbitration clause violated Section 8 (a)(1) of the Act as a restraint on protected concerted activity. NLRB Board member Philip Miscimarra provided a strong dissent, noting that the Board’s basic rule against class arbitration waivers has been rejected by numerous courts, and suggesting that expansion of the rule was therefore unwarranted. Mr. Miscimarra did however concur that the confidentiality, and other aspects of the provision, could deter employees from filing charges with the Board, and to that extent was unlawful.
Century Fast Foods Inc., the respondent in this case, maintained an arbitration agreement that required employees to use “confidential binding arbitration, instead of going to court, for any claims that arise between me and Taco Bell … .” It further required that in the event of a dispute, prior to initiating arbitration, the employee first “present any such claims in full written detail” to the company; then, “complete any internal [company] review process” and then complete any “external administrative remedy.” The charge alleged that the company had violated the Act when it filed a motion to compel arbitration of a class action wage-hour law suit filed under California state law. (The company prevailed on the motion.)
The Board, relying on its decision in D.B. Horton, held that maintaining and enforcing the arbitration provision violated Section 8(a)(1) of the Act. Notably the arbitration agreement did not contain any express restriction on class claims, but the Board inferred the restriction from the confidentiality language. Both the majority and the dissent agreed that the confidentiality language independently violated Section 8(a)(1) as it could be read to chill employees’ ability to discuss matters of mutual concern. The Board also rejected the company’s claim that the arbitration agreement was sufficiently voluntary to be lawful, due to an opt-out provision. The Board rejected the voluntariness argument on the fact, but further held that even if the agreement were “voluntary” it would be unlawful as the confidentiality and other provision amounted to a prospective waiver of the right to engage in protected concerted activity.
What does this mean for employers?
From a practical perspective, employers should review their arbitration agreements for language that could be interpreted as prohibiting employees from discussing matters of mutual concern or placing preconditions on an employee’s ability to file a charge, as the panel unanimously agreed these would make the agreement unlawful. Employers who wish to restrict class arbitration expressly can take some comfort from the fact that the lower courts have generally not been receptive to arguments that are based on D.B. Horton when ruling on motions to compel arbitration of individual claims. However, at this point most of the decisions are at the district court level and the matter therefore requires on-going monitoring.