Last week, National Labor Relations Board (NLRB) Administrative Law Judge William Nelson Cates determined that an arbitration agreement between company Network Capitol Funding Corp. and employee Erik Papke violated the National Labor Relations Act (NLRA). Given the Board's opposition to class claim waivers in mandatory arbitration agreements, the result hardly seems significant at first glance. However, Judge Cates held the agreement at issue in this matter to be unlawful despite the fact that the agreement did not contain any sort of class action waiver. Instead, Judge Cates reasoned that the Company's actions in litigating the matter would cause a reasonable employee to conclude that he was being precluded from pursuing his Section 7 right to act in concert.
Erik Papke signed an Employment Acknowledgment and Agreement (the Agreement) with the Company in October of 2011. The Agreement contained a provision mandating that any dispute between the Company and the employee would be resolved by binding arbitration. However, the arbitration agreement did not contain a class or collective action waiver.
Papke resigned in March of 2013 and immediately filed a class-action complaint against the Company in California. The Company then filed a motion to compel arbitration on an individual basis, pursuant to the arbitration clause of the Agreement. Papke then dismissed his class-action complaint and filed a demand for class arbitration. In response, the Company filed a complaint for declaratory relief in state court, requesting that the court compel Papke to proceed with his claims on an individual basis. The court granted the Company's request in October of 2013, finding that the Company could not be compelled to arbitrate Papke's proposed class action, holding instead that Papke's claim must be arbitrated on an individual basis.
After losing in court, Papke ran to the National Labor Relations Board in order to seek further relief. The General Counsel subsequently issued a complaint against the Company, alleging the Company's attempt to arbitrate Papke's claims on an individual basis precluded Papke from engaging in protected and concerted activity.
In a move that should surprise and concern employers, Judge Cates sided with the General Counsel. Judge Cates determined that the Agreement violated Section 8(a)(1) of the NLRA because "employees would reasonably construe the [Agreement] to prohibit Section 7 activity." Judge Cates explained the Agreement itself was not unlawful. Instead, the Company's enforcement of the Agreement, namely seeking a court order to force Papke to arbitrate his claims on an individual basis, prohibited an employee from exercising his Section 7 right to engage in concerted activity.
"[T]he Company's enforcement of the Agreement prohibits employees from exercising their statutory right to engage in collective action regarding terms and conditions of their employment. There is nothing illegal or unlawful in requiring . . . that employees' work related claims be submitted to . . . arbitration, but rather the illegality is established when it is required that all work claims be arbitrated individually."
Thus, the Company was found to have violated Section 8(a)(1) and was ordered to pay Papke's litigation costs. The key take-away here is that requiring an employee to arbitrate work related claims is still legal. Judge Cates' major issue with the Company was that it enforced the Agreement in such a way as to preclude Papke from pursuing a collective action. Accordingly, unless and until the now-infamous D.R. Horton decision is overruled by the Supreme Court, it remains in effect and is binding on the NLRB's ALJs. Thus, employers should be cognizant that seeking to nix class action arbitrations, even in a judicial setting, can be challenged before the NLRB.