Not Quite Bulletproof:  Recent decisions remind employers to draft mandatory arbitration agreements carefully despite strong Supreme Court approval Thumbnail

Not Quite Bulletproof: Recent decisions remind employers to draft mandatory arbitration agreements carefully despite strong Supreme Court approval

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Employer-mandated arbitration agreements have been a hot topic in recent years. Most notably, in its highly anticipated decision in Epic Systems v. Lewis, the U.S. Supreme Court confirmed that under the Federal Arbitration Act (“FAA”), employers may require employees to enter into mandatory arbitration agreements as a condition of employment, without violating the National Labor Relations Act (“Act”), and that these agreements may also prohibit employees from arbitrating claims on a collective- or class-wide basis.

Epic Systems not only validates individually-mandated arbitration agreements, it may also invalidate state laws that attempt to prohibit arbitration in certain contexts. After New York enacted a law to prohibit the mandatory arbitration of sexual harassment claims, for example, a New York district court struck down the law, holding that it was preempted (i.e., negated) by the FAA as interpreted by Epic Systems. Latif v. Morgan Stanley & Co. LLC, et al., No. 1:18-cv-11528 (S.D.N.Y. June 26, 2019).

With all of this arbitration momentum, one may be forgiven for assuming that employment arbitration agreements are always enforceable, no matter the circumstances. However, two recent lessons teach employers otherwise.
  1. Eighth District Court of Appeals invalidates agreement to arbitrate all disputes (employment or otherwise)
The first lesson comes from Ohio’s Eighth District Court of Appeals, the appellate court for Cuyahoga County, via Thomas v. Hyundai of Bedford, No. 108212 (Jan. 23, 2020).

In Thomas, an employer and employee entered into an arbitration agreement that required the employee to arbitrate “any actual or alleged claim or liability, regardless of its nature.” The court held that this type of language “sought to include every possible situation that might arise in an employee’s life, [and, therefore] the arbitrator would be resolving disputes unrelated to employment.” The court thus held that the agreement was “unconscionable” and therefore unenforceable. Notably, the court reached this conclusion despite the fact that the case itself involved a classic employment dispute (discrimination and retaliation under R.C. Chapter 4112).

Lesson No. 1, courtesy of the Eighth District: Employers using mandatory arbitration agreements (at least in Ohio) should consider explicitly limiting coverage to disputes arising out of the employment relationship.
  1. NLRB rules unlawful an arbitration agreement that failed to explicitly exclude the filing of unfair labor practice charges.
The second lesson comes from the National Labor Relations Board (“NLRB”), the federal agency that enforces the NLRA.  

On February 12, 2020, in Country Wide Financial Corporation, 369 NLRB No. 12 (February 12, 2020), the NLRB ruled that a mandatory arbitration agreement violated the NLRA (notwithstanding Epic Systems) because it restricted employees’ ability to file and pursue unfair labor practice charges before the NLRB. The agreement stated that “[a]rbitration is the parties’ exclusive remedy for covered claims,” which were defined as claims arising out of, relating to, or associated with the employee’s employment relationship and claims for violation of federal statutes.  Thus, the Board held that the arbitration agreement impermissibly prohibited employees from filing an NLRB charge, which the law prohibits.  

Interestingly, the agreement did contain an exclusion clause which clearly provided that “[n]othing in this Agreement shall be construed to require arbitration of any claim if an agreement to arbitrate such claim is prohibited by law.” But the Board found this exclusion insufficient, holding that it “le[ft] the reasonable employee in the dark as to what is prohibited by law,” including  “whether [the exclusion] applies to claims that the NLRA has been violated.”

Lesson No. 2, from the NLRB:  Employers using mandatory arbitration agreements should include language which explicitly states that those agreements do not prohibit employees from making complaints to or filing of charges with government agencies, including the NLRB and EEOC as well as the Securities and Exchange Commission, if  the employer is publicly held. Failing to include this type of language could expose the employer to litigation and unfair labor practice charges.

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