We know that, among many other common employer policies, the NLRB considers many mandatory arbitration agreements to be unlawful, particularly where they prohibit class or collective actions.  See Murphy Oil USA, Inc.,361 NLRB No. 72 (2014).  Unlike a more run of the mill handbook violation where the government seeks removal or modification of the policy, an unlawful arbitration agreement can result in attorneys fees paid to the charging party for monies spent defending a motion to compel arbitration.  The NLRB recently handed down a case that demonstrates yet another pitfall of not having all policies vetted for legality.

In Flyte Tyme Worldwide, 362 NLRB No. 46 (March 30, 2015) the Board, on public policy grounds, refused to approve the withdrawal of charges concerning an alleged unlawful mandatory arbitration provision, even though the parties reached a substantial private settlement.  In the case, employees filed a class action wage and hour lawsuit and the employer sought to compel individual arbitration pursuant to a mandatory arbitration agreement.  The employees’ attorney, faced with the prospect of litigating the claims on an individual basis, filed charges with the NLRB challenging the lawfulness of the arbitration policy.  The NLRB issued complaint and an Administrative Law Judge, relying on D.R. Horton, Inc., 357 NLRB No. 184 (2012), enf. denied in relevant part, 737 F.3d 344 (5th Cir. 2013) found the policy violated Section 8(a)(1) of the Act.  The Judge ordered revision of the policy, notice to employees, file a motion in court to withdraw the motion to compel, and to reimburse the class representatives for any “legal or other expenses related to their opposing the [employer’s] motion to dismiss and compel individual arbitration…”

While the case was on appeal to the NLRB, the employer and employees reached a settlement of the wage and hour litigation, providing for a payment of $900,000.  The payment represented settlement to the employees and “attorneys’ fees, and litigation expenses, taxes, and interest.”  In light of the settlement, the Charging Party’s attorney sought withdrawal of the charge.   The Region did not oppose the motion to withdraw the charges.  The NLRB, however, refused to approve withdrawal of the charges.  In rejecting the motion to withdraw the charge, the NLRB noted while it

is firmly committed to promoting the public interest in encouraging mutually agreeable settlements without litigation, ‘[i]t is well established that the Board’s power to prevent unfair labor practices is exclusive, and that its function is to be performed in the public interest and not in vindication of private rights.  Thus, the Board alone is vested with lawful discretion to determine whether a proceeding, when once instituted, may be abandoned.’

The Board concluded the settlement did not effectuate the policies of the Act because “it did not address, much less provide any remedy for, the violations alleged in the charge.”  In this regard, the fact the settlement did not require the employer to modify or rescind its arbitration policy was reason not to let go of the charges.  The Board also noted that the settlement was not contingent on the Board’s approval of the withdrawal.  The Board was indicating that the subject of the charges, — the arbitration policy, — a policy which presumably applied to other employees was simply not addressed leaving things as they existed prior to the charges (and the wage and hour lawsuit) the same.

This case illustrates the need to understand the landscape and account for government oversight when working out settlements with private parties where NLRB charges have been filed.  Parties often believe they can just settle and that the government will go along with any settlement as long as the private parties are happy.  Not so.  The government will scrutinize private settlements, even those involving discharges as well as policy violations, to make sure that any settlement addresses the public policy concerns.