August 10, 2020

NLRB Enforces Strict Requirements for Savings Clauses in Employee Arbitration Agreements

The National Labor Relations Board (“NLRB” or “Board”) has recently issued a half-dozen decisions addressing the lawfulness of employee arbitration agreements. Employers should not ignore this body of law, which applies to union and non-union employers alike.  

Under longstanding Board law, an employer may not maintain or enforce an agreement with its employees that interferes with their right to file unfair labor practice charges with the NLRB. Broadly worded arbitration provisions, however, often cover the types of claims employees may bring before the NLRB. For this reason, well-drafted arbitration agreements usually contain a “savings clause,” i.e., a clause providing that employees retain the right to file charges with the Board, even if the agreement otherwise includes claims arising under the National Labor Relations Act (“NLRA”) within its scope.  

Such a clause must clearly communicate that employees retain the right to file Board charges, and must be understandable to a “reasonable employee.” As the Board has explained, the standard “is an objective one and looks solely to the wording of the rule, policy, or other provision at issue interpreted from the perspective of an objectively reasonable employee, who does not view every employer policy through the prism of the NLRA.” Windsor Sacramento Estates, LLC, No. 20-CA-196183 (NLRB July 30, 2020).    

Three recent decisions from the Board show just how careful employers must be when drafting savings clauses for their arbitration agreements.    

In the first case, 20/20 Communications, Inc., No. 12-CA-165320 (NLRB July 15, 2020), the Board invalidated an arbitration agreement that stated, in relevant part:

1. Except as provided below, Employee and Employer . . . both agree that all disputes and claims between them, including those relating to Employee’s employment with Employer, and any separation therefrom . . . shall be determined exclusively by final and binding arbitration. . . .
2. . . . Additionally, by agreeing to submit the described claims to binding arbitration, Employee does not waive his or her right to file an administrative complaint with the appropriate administrative agency (e.g., the Equal Employment Opportunity Commission or state agencies of a similar nature), but does knowingly and voluntarily waive the right to file, or seek or obtain relief in, a civil action of any nature seeking recovery of money damages or injunctive relief against Employer, except as described above.

The Board found that the savings clause (paragraph 2) was deficient because it stated that employees “waive the right to file, or seek or obtain relief in, a civil action of any nature . . . .”  (Emphasis in original). As the Board explained, “[i]nterpreted from the perspective of a reasonable employee, this provision prohibits recovering backpay or other monetary relief ordered by the Board,” which violates the NLRA. The employer argued that this clause, on its face, is limited to “a civil action,” which does not include administrative proceedings before the Board. The Board (with a bit of humor) rejected this argument: “Those who carry lawbooks for a living may quibble over whether a Board charge may be characterized as a ‘civil action of any nature seeking recovery of money damages or injunctive relief,’ but we do not expect the ordinary employee to do so.’” 

In the second case, Century Fast Foods, Inc., No. 31-CA-116102 (NLRB July 31, 2020), the Board invalidated an arbitration agreement that stated, in relevant part:

Because of the delay and expense of the court system, TACO BELL and I agree to use confidential binding arbitration, instead of going to court, for any claims that arise between me and Taco Bell, its related companies, and/or their current or former employees. Without limitation, such claims would include any concerning compensation, employment including, but not limited to, any claims concerning sexual harassment or discrimination, or termination of employment. Before arbitration I agree: (i) first to present any such claims in full written detail to TACO BELL; (ii) next, to complete any TACO BELL internal review process; and (iii) finally, to complete any external administrative remedy (such as with the Equal Employment Opportunity Commission).

Again, the problem was the savings clause. The Board held that, as written, the savings clause interfered with employees’ ability to file charges with the Board by imposing mandatory preconditions on the filing of such charges.  

In the third case, GC Services Limited Partnership, No. 28-CA-166389 (NLRB July 24, 2020), the Board invalidated an arbitration agreement the stated, in relevant part:

1. All Disputes Must Be Arbitrated

It is the intent of the parties hereto that all legally cognizable disputes between them that cannot be resolved to the parties’ satisfaction through use of the Company’s personnel policies, must be resolved by final and binding arbitration. Claims subject to arbitration include all legally cognizable claims in the broadest context and include . . . any claim arising under federal . . .  statute . . . . This includes . . . any claim under the National Labor Relations Act . . . . The parties jointly agree neither may file any lawsuit to resolve any dispute between them but Employee may file a complaint with any federal, state, or other governmental administrative agency, regarding any perceived infringement of any legally protected rights.

Here, the Board found that the general savings clause was insufficient to override the specific language covering claims under the NLRA. As the Board explained, in cases where savings clauses have been upheld, “the arbitration agreement featured general coverage language implicitly encompassing but not expressly specifying claims arising under the Act, and specific savings-clause language expressly preserving the right to bring claims or charges before the National Labor Relations Board.”  

Employers should not lose heart. Employee arbitration agreements, when drafted properly, are routinely upheld. While the Board struck down the agreements in the three cases discussed above, it also upheld arbitration agreements with savings clauses in several other recent cases. 

  • Hobby Lobby Stores, Inc., No. 20-CA-139745 (NLRB July 24, 2020) (upholding savings clause that stated employees “are not giving up any substantive rights under federal, state, or municipal law (including the right to file claims with federal, state, or municipal government agencies)”)
  • SolarCity Corp., No. 32-CA-180523 (NLRB July 29, 2020) (savings clause was “sufficiently prominent and unmistakably clear,” and “specifically and affirmatively state[d] that employees may file charges with the Board”)
  • Windsor Sacramento Estates, LLC, No. 20-CA-196183 (NLRB July 30, 2020) (upholding savings clause that was “not easily overlook[ed] or disregard[ed]” and that stated: “Nothing in this Alternative Dispute Policy is intended to preclude any employee from filing a charge with . . . the National Labor Relations Board”).  

The key to compliance is careful drafting. 

What Employers Should Know

When it comes to employment agreements — as well as policies, handbooks, and the like — it is critical to consider how a typical employee (not a lawyer) would interpret the language that is used. For example, just last month, in G&E Real Estate Management Services, Inc., No. 28-CA-178893 (NLRB July 16, 2020), the Board held that the employer violated the NLRA by including a footer on each page of its employee handbook that said “Confidential—For Internal Use Only.” The Board found inclusion of this footer to be unlawful, despite the employer’s argument that it was there for purely administrative reasons, because an employee “would reasonably interpret the footer to prohibit sharing the employee handbook or its terms and conditions with outside parties, such as unions.”  

Employers should revisit and carefully read their employee arbitration agreements to ensure that they do not expressly or impliedly suggest to employees that they may not pursue claims before the NLRB.

Please feel free to contact Payne & Fears LLP if you have any questions.