Alert: Employers Should Review Arbitration Agreements

The Memo attempts to strike a balance between well-established yet competing policy interests. A quintessential element of federal labor law is the right of employees to engage in concerted activities for their mutual aid and protection. At the same time, the U.S. Supreme Court has long recognized the right of employers to demand that employees sign mandatory arbitration agreements, obligating them to pursue employment-related claims in an arbitral forum. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). See also 14 Penn Plaza v. Pyett, __ U.S. ___, 129 S.Ct. 1456 (2009).

Suggested Modifications

Because the right to engage in protected activity includes the right to file collective and class action lawsuits on employment-related matters, the GC Memo concludes that an arbitration agreement that could be read by a “reasonable employee” to waive an individual's right to pursue or participate in employment-related class action lawsuits would constitute an unlawful labor practice. However, arbitration agreements that restrict only the right of employees to pursue individual claims would still be lawful.

The GC Memo suggests modifying existing agreements to provide the following assurances:

• The employer's arbitration agreement does not constitute a waiver of collective rights under Section 7, including the right to pursue concertedly any covered claim before a state or federal court on a class, collective, or joint action basis.
• The employer recognizes the employees' right to challenge concertedly the validity of the forum waiver agreement upon such grounds as may exist at law or in equity.
• No employee will be disciplined, discharged, or otherwise retaliated against for exercising their rights under Section 7.

The Memo further suggests that so long as an arbitration agreement does not purport to restrict the right of employees to engage in protected concerted activity through class actions, i.e., challenging the validity of such agreements, employers can “lawfully seek to have a class action complaint dismissed on the ground that each purported class member is bound by his or her signing of a lawful Gilmer agreement/waiver.”

Conclusion

Although it is unclear whether and to what extent the newly reconstituted NLRB or a new General Counsel will adopt this legal analysis, employers would be prudent to take this as an opportunity to revisit and review the language of any arbitration agreements.

Steven W. Suflas is managing partner of the Ballard Spahr New Jersey office and a partner in the Litigation Department. He is also a member of the Labor and Employment Group and Health Care Group. He can be reached at 856-761-3466 or [email protected]. Isaac P. Hernandez is an associate in the Litigation Department and a member of the Labor and Employment Group.

Employers should revisit and review the language of any arbitration agreements in light of a Guideline Memorandum (GC Memo) issued by Ronald Meisburg four days before stepping down from his post as General Counsel for the National Labor Relations Board (NLRB).

The GC Memo

The GC Memo, issued June 16, 2010, regards the validity under the National Labor Relations Act of mandatory arbitration agreements that restrict the right of employees to pursue class action lawsuits against their employers. It provides a legal framework for determining whether such agreements unlawfully restrict the right of employees to engage in activities protected under Section 7 of the NLRA.

The Memo attempts to strike a balance between well-established yet competing policy interests. A quintessential element of federal labor law is the right of employees to engage in concerted activities for their mutual aid and protection. At the same time, the U.S. Supreme Court has long recognized the right of employers to demand that employees sign mandatory arbitration agreements, obligating them to pursue employment-related claims in an arbitral forum. Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20 (1991). See also 14 Penn Plaza v. Pyett , __ U.S. ___, 129 S.Ct. 1456 (2009).

Suggested Modifications

Because the right to engage in protected activity includes the right to file collective and class action lawsuits on employment-related matters, the GC Memo concludes that an arbitration agreement that could be read by a “reasonable employee” to waive an individual's right to pursue or participate in employment-related class action lawsuits would constitute an unlawful labor practice. However, arbitration agreements that restrict only the right of employees to pursue individual claims would still be lawful.

The GC Memo suggests modifying existing agreements to provide the following assurances:

• The employer's arbitration agreement does not constitute a waiver of collective rights under Section 7, including the right to pursue concertedly any covered claim before a state or federal court on a class, collective, or joint action basis.
• The employer recognizes the employees' right to challenge concertedly the validity of the forum waiver agreement upon such grounds as may exist at law or in equity.
• No employee will be disciplined, discharged, or otherwise retaliated against for exercising their rights under Section 7.

The Memo further suggests that so long as an arbitration agreement does not purport to restrict the right of employees to engage in protected concerted activity through class actions, i.e., challenging the validity of such agreements, employers can “lawfully seek to have a class action complaint dismissed on the ground that each purported class member is bound by his or her signing of a lawful Gilmer agreement/waiver.”

Conclusion

Although it is unclear whether and to what extent the newly reconstituted NLRB or a new General Counsel will adopt this legal analysis, employers would be prudent to take this as an opportunity to revisit and review the language of any arbitration agreements.

Steven W. Suflas is managing partner of the Ballard Spahr New Jersey office and a partner in the Litigation Department. He is also a member of the Labor and Employment Group and Health Care Group. He can be reached at 856-761-3466 or [email protected]. Isaac P. Hernandez is an associate in the Litigation Department and a member of the Labor and Employment Group.