In an effort to reduce the costs of defending employment-related claims, many employers have adopted mandatory arbitration agreements that require employees to submit any claims to an arbitrator, as opposed to filing a lawsuit. However, the enforceability of such arbitration agreements continues to be hotly and extensively litigated. A recent decision by the National Labor Relations Board (NLRB) highlights the importance of structuring a proper mandatory arbitration provision in order to avoid violating the law and voiding the arbitration agreement.

Factual Background

On June 8, 2006, the NLRB issued a decision holding that an employer's policy violated the National Labor Relations Act (NLRA) because it did not expressly exclude from unfair labor practice charges subject to the NLRA from the arbitration agreement. U-Haul Co. of California, 347 NLRB No. 34 (2006)

In U-Haul, the employer distributed to its employees a policy entitled “U-Haul Arbitration Policy” (UAP) and a document entitled “U-Haul Agreement to Arbitrate.” The policy provided that it:

“…applies to all UCC [U-Haul] employees, regardless of length of service or status and covers all disputes relating to or arising out of an employee’s employment with UCC or the termination of that employment. Examples of the type of disputes or claims covered by the UAP include, but are not limited to, claims for wrongful termination of employment, breach of contract, fraud, employment discrimination, harassment or retaliation under the Americans With Disabilities Act, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 and its amendments, the California Fair Employment and Housing Act or any other state or local anti-discrimination laws, tort claims, wage or overtime claims or other claims under the Labor Code, or any other legal or equitable claims and causes of action recognized by local, state or federal law or regulations.”

NLRB’s Decision

The Board recognized that the language of the arbitration policy did not explicitly restrict employees from resorting to the NLRB’s remedial procedures. However, the Board determined that the policy was unlawful under the NLRA because its language could reasonably be read to require employees to resort to the employer’s arbitration procedures. The Board noted that the policy language referencing the policy’s applicability to causes of action recognized by “federal law or regulations” would reasonably inhibit employees from filing unfair charges with the NLRB.

As a result of its decision, the Board ordered the employer to (a) rescind the unlawful arbitration provision from its policy to the extent it applies to filing charges with the NLRB, (b) post a remedial notice at each of its facilities where the arbitration policy has been in effect, (c) remove from its files all unlawful waivers of the right to take legal action executed by its employees, and (d) notify in writing each present or former employee who executed such waiver that this has been done and that the waiver will not be used in any way.

The NLRB’s decision in U-Haul is in line with the policy of the Equal Employment Opportunity Commission (EEOC) with respect to mandatory arbitration agreements. The EEOC’s 1997 policy statement provides that mandatory arbitration agreements that require binding arbitration of employee’s discrimination claims as a condition of employment are contrary to the fundamental principles of the federal employment discrimination laws. Pursuant to this policy, the EEOC may process an employee’s charge and initiate a lawsuit, notwithstanding the charging party’s agreement to arbitrate. The EEOC’s policy on arbitration agreements has been upheld by the U.S. Supreme Court by holding that a private mandatory arbitration agreement entered into between an employee and employer does not prevent the EEOC from seeking damages in a separate action brought by the agency on the employee’s behalf. EEOC v. Waffle House, Inc., 534 U.S. 279 (2002).

Impact on Employers

The Board’s decision has a significant impact on all private sector employers requiring its non-union employees to sign mandatory arbitration agreements. We recommend that all such employers carefully review their arbitration agreements to comply with this decision. Even if the arbitration agreement does not make a reference to the NLRA, it could still be construed as inhibiting the employees from filing unfair labor charges with the NLRB. We suggest that the employers expressly exclude any unfair labor charges under the NLRA from their mandatory arbitration agreements.