NLRB Holds Arbitration Agreements Can Remain Confidential—for Now
Confidential arbitration agreements between employers and their employees are commonplace. Employers favor such agreements for many reasons, including preserving privacy and allowing legitimate claims to be either settled or litigated based on their merits, rather than the threat of public embarrassment or high defense costs. Employees, too, may value the confidentiality afforded by arbitration. In contrast to private and confidential arbitration proceedings, public testimony and publicly filed court pleadings, motions, and briefs may contain unflattering or salacious allegations that are readily accessible to the public and may harm an employee’s future employment prospects and reputation.
Confidentiality provisions, however, potentially restrict employees’ freedom to discuss terms and conditions of employment. Accordingly, in the past, the National Labor Relations Board (“Board” or “NLRB”) held that such provisions violated Section 7 of the National Labor Relations Act ( “NLRA”) because they prevented employees from discussing workplace matters. See, e.g., Professional Janitorial Service of Houston, 363 NLRB No. 35 (2015). Recently, though, the Board clarified that in light of recent U.S. Supreme Court and Board precedent, Section 7 no longer prohibits confidential arbitrations—at least for the time being.
In Dish Network, LLC, 370 NLRB No. 97 (2021), the Board analyzed broad confidentiality agreements that the employer required all applicants for employment to sign, which provided, in relevant part:
“Employee and DISH agree that any claim, controversy and/or dispute between them, arising out of and/or in any way related to Employee’s application for employment, employment and/or termination of employment . . . shall be resolved by arbitration [under the Federal Arbitration Act].” (The “first clause.”)
“[A]ll arbitration proceedings, including but not limited to hearings, discovery, settlements, and awards shall be confidential[.]” (The “second clause.”)
The Board initially determined that both these clauses were unlawful under Sections 7 and 8(a)(1) of the NLRA, see Dish Network, LLC, 365 NLRB No. 47 (2017), but it subsequently revisited these holdings in light of the Board’s decision in The Boeing Co., 365 NLRB No. 154 (2017), which overruled the “reasonably construe” standard in Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004). (The Boeing case is discussed here.)
On remand, the Board analyzed whether the first clause interfered with employees’ Section 7 rights under Boeing, and held that it did because such language—requiring employees to arbitrate “any claim, controversy and/or dispute”—“makes arbitration the exclusive forum for resolving all employment-related disputes between the [employer] and any of its employees, including arising under the [NLRA.]” Critically, there was no qualifying language expressly recognizing employees’ right to file claims or charges with the Board or, more generally, with administrative agencies. As such, in the Board’s view, the first clause fell under Boeing Category 3 because it restricts “employees’ access to the Board [which] render[s] the [first clause] unlawful.”
With respect to the second clause, the Board partially reversed its earlier finding, and found that certain aspects were lawful under the NLRA. Building on its decision in California Commerce Club, Inc., 369 NLRB No. 106 (2020), which held in light of the Supreme Court’s holding in Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 200 L. Ed. 2d 889 (2018) (“Epic Systems”) that confidentiality provisions in arbitration agreements were not per se unlawful under Section 7, the Board concluded that the second clause was lawful under Section 7 insofar as it required all arbitral “proceedings,” including hearings, discovery, and awards, to be kept confidential. (The Epic Systems case is discussed here.) In short, because these provisions were shielded by the Federal Arbitration Act (“FAA”), Section 7 could not be used to invalidate them.
The Board, however, found the requirement in the second clause that “settlements” remain confidential violated employees’ rights and was unlawful under Section 7. According to the Board, the FAA is not implicated with respect to settlements—whether confidential or not—because “a settlement removes a dispute from arbitration or prevents it from going to arbitration in the first place.” As such, the Board held that the legality of this provision was governed by Boeing, not Epic Systems.
Unshielded by the FAA, the Board found that the mere maintenance of this rule concerning settlements violated the NLRA. The Board reasoned that the rule would operate to preclude disclosure of settlements involving disputes that arose under the NLRA and other disputes that concerned wages, hours, or other terms or conditions of employment. “Accordingly, by prohibiting employees from disclosing the terms of any settlement, the Agreement explicitly restricts Section 7 activity.”
Chairman Lauren McFerran dissented in relevant part, and her dissent may prove a harbinger of the Board’s direction in the near future. Chairman McFerran would have invalidated the entire second clause because it “interferes with employees’ core Section 7 right to discuss terms and conditions of employment with their co-workers,” and nothing in the second clause is shielded by the FAA. According to Chairman McFerran, the Epic Systems Court found that the NLRA could not be read to implicitly prohibit class-action waivers because the individualized nature of arbitration is one of arbitration’s fundamental attributes, which the FAA explicitly protects. But, “[h]ere, the shoe is on the other foot”—Section 7 rights are dependent on employees’ right to communicate with one another, whereas the FAA is not dependent on confidentiality. In other words, Chairman McFerran believes that with respect to confidentiality, it is the FAA that must yield to the NLRA, because confidentiality provisions squarely interfere with employees’ core Section 7 rights while they are not squarely protected by the FAA.
This, of course, is not self-evident. As courts have recognized, “[t]he federal policy in favor of arbitration is promoted by permitting one of the principle advantages of arbitration—confidentiality—to be achieved.” Glob. Reinsurance Corp.-U.S. Branch v. Argonaut Ins. Co., No. 07 CIV. 8196 (PKC) (S.D.N.Y. 2008). Thus, just as proceeding individually is one of “arbitration’s fundamental attributes,” so too is confidentiality.
Dish Network, LLC means that, at least for now, employers and employees may agree on conducting their dispute resolution on a confidential basis without violating the NLRA. (State law and other laws may, however, limit the enforceability of these provisions.) This should inure to the benefit of both. Employers, therefore, should ensure that their confidentiality provisions are carefully drafted so as not to interfere with employees’ rights to file charges with administrative agencies, such as the NLRB.
But, with the Board set to flip again to Democrat control as current appointees’ terms expire, businesses wishing to utilize confidentiality provisions should account for the distinct possibility that the Board will overturn decisions like Dish Network, LLC, and once again take the position that confidentiality provisions in arbitration agreements are per se unlawful under Section 7.