NLRB Forbids Union and Non-Union Employers from Using Arbitration Agreements that Include Class Action Waivers

On January 3, 2012, the National Labor Relations Board (NLRB) issued a decision significant to all employers—both union and non-union.  It ruled that requiring employees to sign arbitration agreements that prevent them from joining a class action lawsuit or class arbitration over employment-related issues (like overtime pay) violates the National Labor Relations Act (NLRA).  This decision applies to all private employers, regardless of whether their employees are unionized or not.

Specifically, the NLRB ruled that "employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial."  The NLRB did not forbid agreements that require employees to individually arbitrate workplace disputes.  It held that those agreements were lawful, so long as they provide a method for employees to assert class or collective claims in arbitration or through the courts.

This decision came in a case in which an employee attempted to bring a class action arbitration accusing his employer of misclassifying certain supervisors as exempt from the Fair Labor Standards Act's overtime pay requirements.  Based on a provision in the employee's employment agreement that barred arbitration of class claims, the employer refused.  The employee then contacted the NLRB, claiming the agreement violated his rights under the NLRA.  The NLRB found the employee's claim had merit, and that "the NLRA protects employees' ability to join together to pursue workplace grievances, including through litigation."

The NLRB also held that, under these circumstances, its decision did not conflict with the Federal Arbitration Act, even though just last year the Supreme Court issued a decision upholding the use of class arbitration waivers.  The NLRB claimed the arbitration clause in the contract at issue in this case involved rights protected by the NLRA, which was not the case in the Supreme Court's earlier decision.

NLRB Chairman Mark Pearce and Member Craig Becker issued the decision.  Notably, Member Becker's recess appointment expired at the end of 2011, so this decision was among the last the NLRB issued before his departure.  NLRB Member Brian Hayes recused himself.

As it conflicts with recent Supreme Court rulings, this decision will likely be challenged in the courts and will likely wind up being addressed by the Supreme Court.