Jul 15, 2020 - 10:30am

Confidentiality Carve-Out

The National Labor Relations Board (NLRB) last month released a decision addressing the question of whether confidentiality provisions in employment-related arbitration agreements violate the National Labor Relations Act (NLRA). Its ruling in California Commerce Club, Inc. clarified the extent of the NLRA’s general protection of so-called Section 7 rights that safeguard employees’ right to engage in “concerted activity,” such as discussing their terms and conditions of employment, and it determined that provision does not necessarily apply insofar as arbitration agreements with confidentiality clauses.

As this blog observed on many occasions, the issue of Section 7 rights in general and confidentiality requirements in particular were a significant emphasis under the Obama-era NLRB. During those years, the Board’s Democrat majority adopted a particularly sweeping view of Section 7’s protections and set about an orchestrated effort to attack employers’ workplace rules, such as commonplace policies found in many employee handbooks.

In 2015, the NLRB reversed longstanding precedent regarding confidentiality in workplace investigations in its Banner Estrella Medical Center decision, which held that requiring confidentiality during such investigations was unlawful—despite the fact that confidentiality may be required by other laws. Thankfully, the current Board established a new standard for evaluating workplace polices in 2017 with its Boeing decision, and it reverted back to its previous confidentiality policy with its ruling in Apogee Retail LLC last December.

Another favorite target for the Board were employee agreements that contain mandatory arbitration provisions under the theory that they, too, violate Section 7 rights. Its vehicle for declaring those illegal was its flawed D.R. Horton decision in 2012.  In that case, the NLRB ruled against D.R. Horton, a nationwide homebuilder whose employment agreements contained a commonly-used binding arbitration clause prohibiting class actions to avoid costly litigation.

Unfortunately for the NLRB, the Supreme Court did not see things quite the same way. In 2018, it ruled in a trio of cases that centered on the issue of arbitration agreements. In its decision, the Court ruled that agreements requiring individual arbitration are enforceable under the Federal Arbitration Act (FAA), irrespective of the NLRA’s Section 7 protections.

For its part, the current Board majority continues to reevaluate the, um, novel theories espoused by its predecessors, and its decision in California Commerce Club is another example in which the Board found that an agreement requiring arbitration to be “conducted on a confidential basis” with “no disclosure of evidence or award/decision” was governed by the FAA and therefore legal under the NLRA.

At the same time, the NRLB’s decision does not provide carte blanche for arbitration agreements, and it made clear that “provisions that impose confidentiality requirements beyond the scope of the arbitration proceeding and ‘the rules under which the arbitration will be conducted’ receive no protection from the FAA.” 

Nuance notwithstanding, the decision adds some more much-needed balance to the law.  However, Democrats in the House of Representatives have passed the Protecting the Right to Organize (PRO) Act, which if enacted would ban employment-related arbitration altogether, not to mention adopt numerous other onerous policies, and Democrat presidential candidate Joe Biden has endorsed the proposal as well. Let’s hope their efforts to pass it do not succeed.

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