On December 15, 2014, a divided National Labor Relations Board (NLRB) − split along party lines − overturned 30-year-old precedent addressing standards for the deferral of certain unfair labor practice charges to contractual arbitration procedures. This decision sets a higher threshold for deferral, shifts the burden of proof onto the party seeking deferral and will likely call into question the “final and binding” nature of arbitration.

It is common for employees or unions to pursue a grievance through the parties’ grievance-arbitration process while simultaneously filing factually related unfair labor practice charges. Under longstanding precedent espoused in Olin Corp., 268 NLRB 573 (1984), the NLRB would defer to the arbitration proceedings and award where the contractual issue was “factually parallel” to the unfair labor practice issue, the arbitrator was presented generally with the facts relevant to resolving that issue and the award was not “clearly repugnant” to the National Labor Relations Act. Thus, in most instances, the arbitrator’s award would resolve both the underlying grievance and any factually related unfair labor practice charges.

In Babcock & Wilcox Construction Co., 361 NLRB No. 132 (2014), the NLRB overruled Olin Corp., announced a new arbitration deferral standard and shifted the burden of proof onto the party seeking deferral. Under this new standard, deferral is appropriate only when all of the following conditions are met:

  1. The arbitrator has been explicitly authorized to decide the statutory issue. The proponent of deferral can make this showing by demonstrating that the specific statutory right at issue was incorporated in the collective bargaining agreement or that the parties explicitly authorized the arbitrator to decide the statutory right in that specific case. When renegotiating collective bargaining agreements, employers should ensure that the agreements give arbitrators authority to determine statutory issues.
  2. The arbitrator was presented with and considered the statutory issue, or was prevented from doing so by the party opposing deferral. The NLRB provided little guidance on how thorough this consideration must be, but a proponent of deferral must be able to show that the arbitrator identified the statutory issue and at least generally explained why he found that the facts presented either do or do not support the unfair labor practice allegation.
  3. NLRB law must reasonably permit the award. The proponent of deferral must be able to show that the arbitrator’s decision constitutes a reasonable application of the statutory principles that would govern the NLRB’s decision, if the case were presented to it, to the facts of the case. The arbitrator’s decision must be one that a decision-maker reasonably applying the National Labor Relations Act could reach.

This new deferral standard modifies not only post-arbitral deferral practices, but also pre-arbitral deferral practices and reviews of settlement agreements arising from the grievance-arbitration process. In other words, the NLRB will no longer defer unfair labor practice allegations to the arbitral process unless the parties have explicitly authorized the arbitrator to decide the unfair labor practice issue. Similarly, the NLRB will review pre-arbitral settlement agreements to ensure that the parties intended to settle the unfair labor practice issue, the parties addressed the statutory issue in the settlement agreement, and NLRB law reasonably permits the settlement reached.

The NLRB will apply the new standard prospectively. Where current contracts do not authorize arbitrators to decide unfair labor practice issues, the NLRB will not apply the new standards until those contracts have expired or the parties have agreed to present particular statutory issues to the arbitrator.

Employers are more likely to face duplicative litigation in the form of grievance-arbitration proceedings and factually related unfair labor practice charges as a result of this decision. As stated by NLRB Member Miscimarra in his dissent, the changed deferral standards “effectively guarantee that ... arbitration will not be final and binding. The outcome will be more work for the [NLRB], at the expense of speed, predictability, and certainty for the long litigation treadmill that is associated with [NLRB] and court litigation of unfair labor practice claims.” The new deferral standard lessens the efficiency of contractual arbitration as a means to resolve labor disputes and encourages unions to file unfair labor practice charges where they might receive a more favorable ruling from the NLRB.

This decision is yet another example of the current NLRB’s willingness to overturn well-settled NLRB precedent. We expect the NLRB to continue issuing decisions that significantly alter well-established law. Therefore, employers should continue to monitor developments from the NLRB closely.