This post details a recent development in the jurisprudence of mandatory arbitration agreements that requires an employer’s mandatory arbitration policy to unambiguously communicate the fact that the policy does not prohibit employees from bringing any unfair labor charges in front of the National Labor Relations Board (NLRB).

On November 24, 2015, a three-judge panel appointed by the NLRB issued a noteworthy decision in the case of Professional Janitorial Services of Houston, Inc and SEIU, affirming in part and modifying in part the Administrative Law Judge’s decision below. Although the panel agreed with the ALJ on some of the issues presented (addressed in more depth below), the judges diverged with respect to the charging party’s allegation that the employer’s mandatory arbitration policy violated §8(a)(1) because employees would reasonably construe it to interfere with and limit their access to the NLRB and its processes.

Ultimately, the Board held that the mandatory arbitration policy employed by the Professional Janitorial Service (PJS) did, in fact, constitute a violation, resting its conclusion on the ambiguity of the language contained in the policy and the probability that it would mislead employees into believing that some unfair labor charges, although cognizable under Board law, would nevertheless be subject to the binding arbitration agreement and thus blocked or removed from the NLRB’s procedures. Because such a construction would prohibit activities protected by §7 of the NLRA, the Board deemed PJS’ maintenance of the policy unlawful.

The panel overruled the relevant portion of the ALJ’s decision, and modified the order accordingly.

This decision sets important precedent regarding the kind of “clear statement” that the Board requires all mandatory arbitration policies to have — one that unambiguously excludes from the policy’s coverage all claims arising under the NLRA that could otherwise be filed with the NLRB. In light of the prevalence of mandatory arbitration agreements in employment contracts and the likelihood that many employ language similar to that deemed to be a violation here, this decision has serious and far-reaching implications for employers and unions alike.

The Applicable Law

The panel srutinized the arbitration policy under the test for work rule violations set forth in Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004), which makes a rule unlawful if (a) the rule explicitly restricts activities protected by §7 of the NLRA, or (b) employees would reasonably construe the rule as prohibiting §7 activities.

The panel found instructive the application of this rule in D.R. Horton and Murphy Oil, two cases in which the Board found §8(a)(1) violations on the ground that the language of the policies would lead employees to believe that it prevented them from filing unfair labor practice charges with the NLRB. After parsing the relevant language at issue here, the panel found that PJS’ policy was guilty of the same.

The Arbitration Policy and The Board’s Reasoning

The four-page arbitration policy at issue contained language typical to mandatory arbitration agreements. The policy applied to all employees and purported to cover “all disputes relating to or arising out of an employee’s employment,” except for those described in the Exclusions and Restrictions section. Outside of those claims specifically excluded, the policy made clear that the agreement reached all claims for wrongful termination, breach of contract, “or any other legal claims and causes of action recognized by local, state or federal law and regulations.” Employees agreed to submit all such claims to final and binding arbitration as the sole and exclusive remedy for any claim or dispute against the employer.

In its analysis, the panel emphasized the policy’s inclusion of the above “broadly worded language that all employment-related disputes with the employer . . . must be arbitrated.”

But more significant was the Exclusion and Restriction section’s failure to “clearly except from coverage all disputes that could form the basis of Board charges.”

Specifically, the Exclusions and Restrictions section of the agreement stated that “any non-waivable statutory claims, which may include . . . charges before . . . the National Labor Relations Board . . . are not subject to exclusive review by arbitration” (emphasis added).

The panel viewed this language as falling short of communicating that all claims covered by the Act would be exempt, and instead suggesting that such disputes might be exempt, but only if they constituted non-waivable statutory claims. This was problematic because employees would be misled into believing that they were waiving the right to bring certain disputes before the Board, even if others were non-waivable.

Although the Exclusions section then clarified that it was permissible for an employee to file non-waivable statutory claims with an appropriate agency (such as the NLRB), it followed this with the provision that “if such an agency completes its processing of your action against the company, you must use arbitration if you wish to pursue further your legal rights, rather than filing a lawsuit . . .”

The panel took issue with this phrasing as well, asserting that it could reasonably suggest to employees that even if they could initially file charges with the Board and access its procedures, ultimately, under the agreement, their charges could only be resolved by proceeding through binding arbitration.

In sum, given the absence of “a sufficiently clear statement” that excluded all NLRA claims from coverage “without limitation or qualification,” the panel concluded that employees would construe the policy’s ambiguous language as restricting some unfair labor charges to mandatory arbitration (and thus limiting employees’ access to the Board).

Employers should note the signal sent by the Board and modify their arbitration policies to include such statements in order to ensure compliance with §8(a)(1).

Other Noteworthy Issues Raised by Professional Janitorial Services of Houston, Inc.

As previously alluded to, the case presented additional issues, both of which were resolved by the ALJ and the panel in harmony. Supplementing the above excerpts of PJS’ arbitration policy were both a confidentiality provision and a mandatory waiver of the employee’s right to pursue collective actions. As to these, the Board affirmed the ALJ’s finding that both provisions constituted violations of §8(a)(1).

Although these issues were less prominent in the discussion (probably due to the consensus), it is worth noting that the panel’s holding with respect to the mandatory waiver of class litigation constitutes part of a larger, ongoing struggle between the NLRB and the Supreme Court over the validity of mandatory class waivers in arbitration agreements generally. The holding in this case followed directly from two of the Board’s past decisions in D.R. Horton and Murphy Oil, which rejected facial restrictions on employees’ access to class litigation of employment-related claims.

Read more about these decisions and their juxtaposition to the Supreme Court’s class action waiver jurisprudence here.