January 13, 2020Client Alert

EEOC and NLRB Make Employer Friendly Arbitration Agreement

Recent reversals from the Equal Employment Opportunity Commission (EEOC) and the National Labor Relations Board (NLRB) signal positive developments for employers seeking to require and enforce arbitral decisions of employment disputes.

On December 16, 2019, the EEOC retracted its 22-year old position opposing arbitration of employment discrimination claims in light of conflicting U.S. Supreme Court case law. The EEOC’s July 1997 “Policy Statement on Mandatory Binding Arbitration of Employment Discrimination Disputes as a Condition of Employment” viewed such mandatory arbitration agreements as illegal, stating that to: “unilaterally impose agreements mandating binding arbitration of employment discrimination disputes as a condition of employment harms both the individual civil rights claimant and the public interest in eradiating discrimination.”

The old policy laid out the EEOC’s two-prong approach. First, the policy stated the EEOC would “closely scrutinize” discrimination claims involving arbitration agreements to determine whether employers secured the provisions under “coercive circumstances.” To the extent the EEOC identified such agreements as obtained as a condition of employment, the commission would challenge the legality of those agreements.

The EEOC has now rescinded its July 1997 policy. The commission announced in a release posted on its website: “Since its issuance, the Supreme Court has ruled that agreements to arbitrate employment-related disputes are enforceable under the Federal Arbitration Act for disputes between employers and employees. In other arbitration-related cases it has decided since 1997, the [Supreme Court] rejected concerns with using the arbitral forum – both within and outside the context of employment discrimination claims.”

Although rescinding its July 1997 policy, the EEOC made clear that “the EEOC continues to be fully available to employees as an avenue to assert EEO rights and to investigate in the public interest, regardless of whether the parties have entered into an enforceable arbitration agreement.” The EEOC also noted that its rescission does not limit the commission’s ability, or the ability of anyone else, to challenge the enforceability of an arbitration agreement.

A week after the EEOC rescinded its July 1997 policy position, the NLRB announced the return to its traditional pre-Obama era standard for determining whether to defer to an arbitrator’s resolution of grievances alleging illegal disciplinary or firing practices under the National Labor Relations Act (NLRA). Under the restored standard, the Board will again defer to the arbitrator’s decision where: (1) the arbitral proceedings appear to have been fair and regular; (2) all parties have agreed to be bound; (3) the arbitrator considered the unfair labor practice issue; and (4) the arbitrator’s decision is not clearly repugnant to the NLRA.

The NLRB’s decision, United Parcel Service, Inc., overturned the Board’s 2014 decision in Babcock & Wilcox Construction Co. The Babcock decision reversed the Board’s decades-old “Spielberg/Olin” standard and made the Board more likely to second-guess arbitrators in labor disputes. United Parcel Service, Inc. means the burden once more falls on the party seeking to invalidate an arbitral decision to demonstrate the defects in the process or the decision and that the Board is again less likely to second guess arbitrators.

In its decision, which applies retroactively to all pending cases, the Board explained its return to the more employer-friendly Spielberg-Olin standard: “Babcock represented a drastic contraction of deferral practices that had existed for decades and that we reestablish today. We find…that the 3-member majority holding in Babcock upset the proper balance of interests struck by the longstanding precedent it overruled.” The Board further explained that the Obama-era decision was based on flawed reasoning, including an “implicit distrust of arbitration.”

The two reversals from the EEOC and NLRB bring agency employment arbitration policies better in line with existing federal law. The decisions should encourage employers to again consider broad, carefully constructed mandatory arbitration agreements for their workforces. If you would like to consider mandatory arbitration for your workplace please contact your Michael Best relationship attorney or one of the authors of this alert.

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