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National Labor Relations Board Decision Finds Broad Mandatory Arbitration Policy Unlawful

August 1, 2006

This is an important development for employers, Bracewell & Giuliani attorney says

WASHINGTON (August 1, 2006) - The National Labor Relations Board (NLRB) recently ruled that an employer's publication of a broad mandatory arbitration policy is a violation of the National Labor Relations Act (NLRA) unless it expressly excludes charges with the NLRB.  The Board found that the mere publication of such a policy is unlawful because of its potential chilling effect on employees' filing work-related complaints directly with the NLRB, even absent evidence of the employer's having enforced the policy in this manner or evidence of any employee's having interpreted the policy in this manner.

“This is an important development for employers in considering whether to adopt or maintain alternative dispute resolution policies in employment contracts, handbooks and policies, and what changes are necessary in existing agreements” said Bracewell & Giuliani LLP Labor & Employment partner Nancy Morrison O’Connor.

Bracewell has one of the largest labor and employment practices in the country with 60 attorneys representing public and private employers in diverse industries to address and resolve workplace issues as well as traditional labor and management disputes.

In this recent NLRB case, U-Haul Company of California (UCC) employees, as a condition of their employment, were required to sign a mandatory arbitration agreement for all disputes, including causes of action recognized by “federal law or regulations.”  Two of the three Board members on the panel found that the policy violates the Act because it would "reasonably tend to inhibit employees" from filing unfair labor practice charges directly with the NLRB, specifically charges alleging violation of employee rights under Section 7 of the NLRA.

Although the Board Majority found that the publication of the mandatory arbitration policy was unlawful, it also found that statements in the UCC employee handbook that called for work-related complaints to be brought initially to a supervisor and then to the company President did not violate the Act.

Recognizing that the challenged policy does not explicitly restrict employees from filing charges, the NLRB nevertheless found that the language of the policy alone--even without any evidence of its having been enforced or interpreted in this manner-- was enough to lead employees unlawfully to the belief that they must resort to the policy's arbitration procedures instead of filing charges with the NLRB.

Additionally, the Board specifically targeted the phrase “any other legal or equitable claims and causes of action recognized by local, state, or federal law or regulations” as reasonably including the filing of charges with the NLRB, leading employees to believe that they are precluded from filing such charges, in violation of the NLRA. 

In a sweeping order, the Board invalidated the entire UCC policy and required written notice to each former and current employee who had signed the arbitration agreement that it would not be used for any purpose, purportedly not limiting the effect of the decision to the NLRA.

“This decision flies in the face of the universal support for the adoption of alternate dispute resolution procedures, including arbitration agreements.  These agreements and policies are used by employers nationwide in both individual contracts of employment and company-wide policies in an effort to address employee complaints swiftly and economically.  For decades, mandatory arbitration agreements have been included in virtually every collective bargaining agreement between employers and unions without any express mention of Section 7,” continued O’Connor.  “Employers must now determine if their existing arbitration agreements, including their collective bargaining agreements, are in compliance with this new decision and, if they decide to continue to use arbitration clauses at all, whether they comply with the new requirements." 

Melanie Hillis