NLRB Rules That Employers Can’t Require Workers to Use Arbitration

The National Labor Relations Board continues to jump into controversial workplace issues, ruling late Friday that employers can’t force employees to agree to arbitration instead of taking their workplace claims to court.

According to The New York Times:

In a decision that will no doubt anger many companies, the labor board concluded that a federal law protecting workers’ right to engage in concerted action trumps any arbitration agreement that bars them from bringing group claims. The ruling applies to nonmanagement private sector workers, union and nonunion, from low-wage restaurant workers to well-paid employees on Wall Street.

The ruling examined an agreement used by a nationwide homebuilding company, D. R. Horton, in which workers were required to waive their right to sue in court and instead bring all claims to an arbitrator on an individual basis. The agreement prohibited the arbitrator from consolidating claims, allowing a class or collective action or awarding relief to a group or class of employees.

The labor board ordered Horton to rescind the agreement or change it to make clear to employees that they were not waiving their right to pursue collective action.”

A “big deal” for the business community

These “forced” arbitration agreements have become standard practice for most private sector employers, and workers are routinely required to waive their rights to a court action and instead agree to go to arbitration if they have a job-related claim as a condition of employment. The NLRB’s ruling that arbitration agreements can’t be forced upon workers can potentially open the door to more costly workforce legal cases for employers — and it clearly shows the ongoing impact of President Obama’s controversial appointees to the NLRB.

This is a big deal,” said Professor Alex Colvin, an expert on mandatory arbitration agreements who teaches at the Cornell School of Industrial and Labor Relations. “Mandatory arbitration agreements are so widespread, and this would suggest that many of them violate labor law by barring class actions. I also think the business community will be up in arms because you have federal labor law being applied in a nonunion setting.”

The problem for business groups — who are expected to appeal this latest decision — is that this NLRB ruling came before new members of the board who were appointed earlier this month by President Obama in a controversial recess appointment are sworn in. As The Wall Street Journal notes:

The decision, which was backed by the board’s two Democrats, was among the final votes the three-member board took before Democrat Craig Becker’s term expired. The board’s lone Republican, Brian Hayes, was recused from the case.

With Mr. Becker’s departure, the board lost its quorum and decision-making ability midweek, but President Barack Obama Wednesday used recess appointments to name three new members to the board. The three — two Democrats and one Republican — are expected to be sworn in next week amid controversy over whether their appointments were unconstitutional. Business groups worry the board will continue what they allege has been a bias favoring unions over employers under the Obama administration.”

This is a far-reaching decision given how ubiquitous forced arbitration agreements have become in the workplace. They are standard practice for most private sector employees, and the NLRB’s decision will likely send many company’s scrambling to figure out what to do next now that they can’t require employees to only submit workforce claims to the arbitration process.

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For more from The New York Times story on the NLRB action, click here. 

For more on The Wall Street Journal version of the story, click here. 

John Hollon is managing editor of Fuel50, an AI Opportunity Marketplace solution that delivers internal talent mobility and workforce reskilling. He's also the former founding editor of TLNT and a frequent contributor to ERE and the Fistful of Talent blog.