NLRB Strikes Down Arbitration Agreement Banning Class Proceedings

In what promises to be a controversial ruling, the National Labor Relations Board (NLRB) has invalidated an employer's arbitration agreement because the contract barred collective actions. (Learn more in the NLRB's press release about the case, which links to the decision.)

Many employers require employees to sign arbitration agreements, by which the employees "agree" (typically, as a condition of employment) not to sue the employer, but instead to arbitrate any legal disputes that may arise in the employment relationship. Often, arbitration agreements require employees to bring their claims individually. In other words, employees may not bring class actions (because they may not go to court) and they may not bring class arbitrations. This is the provision that the NLRB struck down as a violation of the National Labor Relations Act, which guarantees employees the right to take concerted action to improve the terms and conditions of their employment.

The Supreme Court has held, in the consumer context, that arbitration agreements don't have to allow for collective actions. However, the rights provided by the National Labor Relations Act are specific to the employment relationship, which the Supreme Court case did not address directly. It remains to be seen how influential the NLRB's ruling will be, given that the Board's every action and decision has been heavily scrutinized lately. But employers that use arbitration agreements in which employees give up the right to proceed collectively should probably check in with their employment lawyers . . .