The National Labor Relations Board’s (the “NLRB” or the “Board”) flurry of activity to rewrite labor law continues apace. In a controversial 3-2 decision in Babcock & Wilcox Construction Co., Inc., Case 28-CA-022625 (Dec. 15, 2014), the Board abandoned 30 years of precedent to change the Olin Corp., 268 NLRB 573 (1984) standard for deferral to arbitral decisions and prearbital settlement agreements. This new standard will require employers to renegotiate their grievance and arbitration clauses, change how they handle arbitrations, and modify how they draft settlement agreements. 

The new standard applies to unfair labor practice charges arising under Section 8(a)(1) of the National Labor Relations Act (the “Act”), which makes it unlawful for employers to “interfere with, restrain, or coerce employees” in the exercise of their Section 7 rights. The standard also applies to Section 8(a)(3) of the Act, which makes it unlawful for employers to discriminate against employees “to encourage or discourage membership in any labor organization.” In addition, the new standard will make it much easier for a Union to overturn an arbitrator’s decision finding that there was just cause for discipline or termination and challenge a prearbital grievance settlement agreement. Unless an employer is particularly careful, it may find itself re-litigating a successful arbitration or perhaps worse yet, paying out a settlement only to have the NLRB award further relief. The new standard also changes the deferral process in pre-arbitration cases. 

For the past 30 years, the Board would routinely defer to an arbitration decision if the proceedings appeared to be fair and regular, all parties agreed to be bound, and the decision was not clearly repugnant to the Act. For deferral to apply, the arbitrator also must have adequately considered the unfair labor practice issue, which is shown if: (1) the contractual issues are factually parallel to the Unfair Labor Practice (“ULP”) issue, (2) the arbitrator was presented generally with the facts relevant to resolving the ULP, and (3) the decision is susceptible to an interpretation consistent with the Act. The party who opposed deferral bore the burden of proof. 

Under the much more difficult standard established in Babcock & Wilcox, if the parties mutually agreed to the proceedings and the proceedings appear to be fair and regular, the burden is now shifted to the employer (i.e. the party urging deferral) to prove that: (1) the arbitrator was explicitly authorized, either in the parties’ collective bargaining agreement (“CBA”) or by agreement in the particular case, to decide the ULP issue; (2) the arbitrator was presented with and considered the statutory issue or was prevented from doing so by the party opposing deferral; and (3) Board law reasonably permits the award. For settlement agreements, the employer must show that the parties intended to settle the ULP, that the ULP was addressed in the settlement agreement, and that Board law reasonably permits the settlement agreement.

While the new Babcock & Wilcox standard applies prospectively (meaning it applies to CBAs negotiated on or after December 16, 2014), employers will need to take significant steps to ensure that arbitration is indeed final and binding. In order to insulate an arbitrator’s decision from later challenge before the Board, employers should add new language to grievance and arbitration clauses expressly authorizing an arbitrator to consider any Section 8(a)(1) and 8(a)(3) matters. Moreover, employers in all discipline related cases that go to arbitration will be forced to raise Section 8(a)(1) and 8(a)(3) issues prior to arbitration through information requests, correspondence, or during the arbitration proceedings even if the Union or grievant has not raised the issue. Employers should also request that arbitrators specifically rule on these issues—that way, an employer can later establish to the Board it was considered by the arbitrator. Finally, settlements of prearbital grievances should contain specific language addressing and resolving any Section 8(a)(1) and 8(a)(3) matters.