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Confidential Binding Arbitration Provision in Fast Food Job Application was ULP: NLRB
Practical Law Legal Update w-001-3705 (Approx. 7 pages)
Confidential Binding Arbitration Provision in Fast Food Job Application was ULP: NLRB
by Practical Law Labor & Employment
| Published on 27 Jan 2016 • USA (National/Federal) |
In Century Fast Foods, Inc., the National Labor Relations Board (NLRB) found that an arbitration provision in an employment application violated the National Labor Relations Act (NLRA) by effectively requiring applicants, as a condition of employment, to waive their rights to pursue class or collective actions involving employment-related claims in all forums.
On January 20, 2016, in Century Fast Foods, Inc., the panel (Board) heading the NLRB's judicial functions held that an arbitration provision in an employment application violated the NLRA by effectively requiring employees, as a condition of employment, to waive their rights to pursue class or collective actions involving employment-related claims in all forums for "confidential binding arbitration." Although the application did not state that signing the arbitration provision was required, the three member Board panel (Chairman Pearce and Member Hirozawa with Member Miscimarra concurring in part and dissenting in part) found that employees reasonably would believe that it bars or restricts their rights to engage in concerted activities or to file unfair labor practice (ULP) charges (363 N.L.R.B. No. 97 (Jan. 20, 2016).)
Respondent, Century Fast Foods, Inc. (Century) maintained an arbitration provision entitled "Agreement to Arbitrate," (arbitration provision) in its employment application. The arbitration provision read:
"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). In any arbitration, the then prevailing employment dispute resolution rules of the American Arbitration will apply, except that TACO BELL will pay the arbitrator's fees, and TACO BELL will pay that portion of the arbitration filing fee in excess of the similar court filing fee had I gone to court."
The employment application did not have an "opt out" for the arbitration provision. As part of Century's hiring process, from October 22, 2012 through February 12, 2013, Century required all job applicants to sign and date the employment application.
The Board majority extended the principles of D. R. Horton, Inc. and Murphy Oil USA, Inc. to these new circumstances (see 357 N.L.R.B. No. 184 (Jan. 3, 2012), enf. denied in relevant part, 737 F.3d 344 (5th Cir. 2013) and 361 N.L.R.B. No. 72 (Oct. 28, 2014), enf. denied, 808 F.3d 1013 (5th Cir. 2015)). It found that:
- Although the arbitration provision does not explicitly restrict class or collective employment claims, employees would reasonably read it to restrict their Section 7 right to engage in collective action because it requires employees to use "confidential" binding arbitration (Lutheran Heritage Village-Livonia, 343 N.L.R.B. 646, 647 (2004)).
- The requirement to use "confidential" binding arbitration prevents employees from discussing claims with their coworkers or learning that coworkers are pursuing work-related claims in arbitration. This impinges on employees' abilities to pursue their protected right to concertedly pursue joint, class, or collective claims.
- The arbitration provision was applied to restrict Section 7 rights under the third prong of Lutheran Heritage. Even if the arbitration provision did not expressly restrict employees from pursuing class or collective actions, Century applied the provision unlawfully to bar joint, class, or collective action when it moved to compel individual rather than class or collective arbitration. (Countrywide Fin. Corp., 362 N.L.R.B. No. 165, slip op. at 3-5 (Aug. 14, 2015); Leslie's Poolmart, Inc., 362 N.L.R.B. No. 184, slip op. at 1 fn. 3 (Aug. 25, 2015); Philmar Care, LLC, 363 N.L.R.B. No. 57, slip op. at 1 (Dec. 11, 2015).)
- Applicants would reasonably perceive the arbitration provision as an imposed condition of employment; it was not voluntary.
- Even if the arbitration provision in the employment application was voluntary, an arbitration provision that effectively precludes class or collective action in all forums would be unlawful for requiring employees to prospectively waive their Section 7 right to engage in concerted activity (On Assignment Staffing Servs., 362 N.L.R.B. No. 189, slip op. at 1, 5-8 (Aug. 27, 2015); Bristol Farms, 363 N.L.R.B. No. 45, slip op. at 1-2 (Nov. 25, 2015)).
- Employees reasonably would construe the arbitration provision to restrict their access to the NLRB's processes (U-Haul Co. of Cal., 347 N.L.R.B. 375, 377-378 (2006), enfd. 255 Fed. Appx. 527 (D.C. Cir. 2007)).
- The arbitration provision's purported exemption permitting employees to file charges with administrative agencies did not save it from being unlawful. Access to administrative agencies is not the equivalent of access to a judicial forum where employees may pursue their claims on a joint, class, or collective basis. (SolarCity Corp., 363 N.L.R.B. No. 83 (Dec. 22, 2015).)
Member Miscimarra dissented to the extent the majority relied on D.R. Horton, Murphy Oil, and their progeny, but concurred in part, finding that:
- The arbitration provision violated Section 8(a)(1) of the NLRA by requiring that employees use confidential binding arbitration to resolve covered disputes. NLRA-protected concerted activity often necessarily involves discussions and coordination between or among employees regarding employment-related disputes, including those that may be resolved in arbitration. Those discussions and coordination appear to be precluded by "confidential arbitration." The record reveals no reasonable limitations on or justifications for a blanket requirement of confidentiality (see Banner Health Sys., 362 N.L.R.B. No. 137, slip op. at 13-19 (June 26, 2015)).
- The arbitration provision unlawfully interferes with the filing of charges with the Board (see U-Haul Co. of Cal.).
UPDATE
In Epic Systems Corp. v. Lewis, the US Supreme Court held that arbitration agreements with class and collective action waivers are not prohibited under Section 7 of the NLRA and must be enforced as written under the Federal Arbitration Act (FAA). The decision invalidates the NLRB's analysis in D.R. Horton and Murphy Oil on which this decision relies and therefore abrogates much of the analysis in this case (( (U.S. May 21, 2018); see Legal Update, SCOTUS: Arbitration Agreements with Class Action Waivers Must Be Enforced as Written, and NLRA Does Not Command Otherwise and Article, Expert Q&A on Class Action Waivers in the Employment Context.)