NLRB Strikes Down Mandatory Arbitration Policy as Condition of Employment

Volume 5, Issue 12
September 20, 2006

In U-Haul Co. of California, 346 N.L.R.B. No. 34 (June 8, 2006), the National Labor Relations Board ("NLRB") held that U-Haul Co. of California violated the National Labor Relations Act ("the Act") by maintaining a mandatory arbitration policy and agreement as a condition of employment. Like many employers, U-Haul's mandatory arbitration policy and agreement is drafted broadly to cover all disputes relating to or arising out of an employee's employment with the employer, including, but not limited to, claims for wrongful termination of employment, breach of contract, fraud, employment discrimination, harassment or retaliation and "any other legal or equitable claims and causes of action recognized by local, state or federal law or regulations." The NLRB held that the use of the phrase "any other legal or equitable claims and causes of action recognized by local, state, or federal law or regulations" can be read to include the filing of an unfair labor practice charge with the NLRB.

In its decision, the NLRB explained that where an arbitration policy or rule does not explicitly restrict activities protected by the National Labor Relations Act, such as the filing of an unfair labor practice charge, a violation of the Act will be found upon a showing of one of the following: (1) reasonable employees would construe the language to prohibit Section 7 activity; (2) the rule or policy was promulgated in response to union activity; or (3) the rule or policy has been applied to restrict the exercise of Section 7 rights. In the U-Haul case, the Board found that the arbitration policy was unlawful as employees would reasonably read it to prohibit the filing of unfair labor practice charges with the NLRB.

The NLRB ordered U-Haul to rescind the arbitration policy as drafted, post a remedial notice to employees, remove the unlawful arbitration waivers from employees' files, and notify employees that the arbitration waivers would not be used in any way. NLRB orders are not self-enforcing, however, and a federal circuit court has to compel enforcement.

Even if enforced by a federal circuit court, this decision only pertains to the validity of arbitration agreements as to claims under the National Labor Relations Act and should not serve as a basis to invalidate such an agreement's use with respect to other claims. However, employers facing an order such as the one in the U-Haul case could find themselves in a difficult situation between the time they rescind an existing policy and arbitration waivers and the time they institute new polices and obtain new waivers, particularly if they do not have severability clauses in their arbitration programs and agreements. Thus, employers should consult with legal counsel as to whether they should modify their arbitration policies and agreements to expressly exclude administrative charges under the National Labor Relations Act.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.