McFerran Dissent Portends a Change in NLRB’s View of Confidentiality Provisions in Arbitration Agreements

As the National Labor Relations Board transitions from a Republican-majority to a Democrat-majority, the Board’s sole Democrat, Chairman McFerran, continues to provide a window into what the future is likely to look like under a Biden Board. This update is another in a multi-part series discussing how Chairman McFerran’s dissents may become the law once President Biden appoints new Board members and the Democrats are in the majority. Another example of this appears in the Board’s March 18, 2021 decision, Dish Network, LLC, which considered the enforceability of certain provisions in a mandatory arbitration agreement.

The employer’s arbitration agreement required employees to submit “any” claim or controversy to mandatory arbitration, without any carve-out for unfair labor practices charges alleging violations of the National Labor Relations Act. The agreement further provided, among other things, that “all arbitration proceedings, including but not limited to hearings, discovery, settlements, and awards shall be confidential…”

The Board majority had little trouble in finding that requiring employees to arbitrate “any” claim or controversy unlawfully restricted employees in their ability to access the Board to seek redress for unfair labor practices. It was the confidentiality provision, however, that sparked a very lengthy debate between the Republican majority and McFerran’s dissent, with both sides either relying on or criticizing the Board’s decision in California Commerce Club, Inc. (2020) and disagreeing about the import of the Supreme Court’s decision in Epic Systems (which upheld class waivers in arbitration agreements).

In Dish, the Republican majority upheld the confidentiality provision, except to the extent that it required that “settlements” be kept confidential. On the former, the majority relied on the decision in California Commerce Club, which held that “provisions in an arbitration agreement requiring that arbitration be conducted on a confidential basis, including provisions precluding the disclosure of evidence, award, and/or decision beyond the arbitration proceeding, do not violate the Act and must be enforced according to their terms pursuant to the [Federal Arbitration Act].”

The Dish majority wrote: “the Supreme Court has repeatedly made clear that ‘the FAA requires that courts rigorously enforce arbitration agreements according to their terms, including terms that specify … the rules under which …arbitration will be conducted.” Thus, according to the majority, if a provision in an arbitration agreement pertains to arbitration “proceedings,” then the FAA shields the challenged provision.

However, the Board majority concluded, and McFerran agreed, the provision that “settlements” be kept confidential was unlawful because a settlement (an alternative to arbitration) is not part of the arbitral “proceeding.” As such, the FAA did not shield that provision. That being the case, the Board had to consider whether the requirement that settlements remain confidential violated Section 7. The Board agreed that it did, pointing to the fact that a settlement might cover an issue that could have been submitted to the Board and arguably would prohibit an employee from filing charges with the Board over a settlement that violated the Act.

Advancing the notion that the majority’s decision was yet another effort at forcing employees to “suffer in silence at work,” the McFerran dissent was forceful enough to result in the majority writing a separate section in response. In short, the McFerran maintained that the confidentiality provision restricted employees in their ability to seek redress from the Board and prohibited them from discussing terms and conditions of employment.

In terms of interfering with Board access, McFerran’s dissent gave as an example an employee being unable to seek Board redress if the employee learned during the arbitration about Section 7 violations. Or employees might be subject to “coercive interrogation” during arbitral discovery or directed not to discuss with co-workers the facts at issue in the matter. By maintaining a rule generally prohibiting disclosure about anything taking place at the proceeding to anyone necessarily meant that an employee could not reveal the information to a private attorney or the Board. It made no difference to McFerran that an employer would not actually be able to enforce these provisions as the Board has long recognized that such rules might have a “chilling effect” on employees.

Chairman McFerran made clear that the Board’s decision in California Commerce Club may have a short shelf-life, stating flatly that the case was “wrongly decided” and that the Board misapplied Supreme Court precedent “when it concluded that the NLRB and the FAA cannot be reconciled and that the FAA must displace the NLRA with respect to confidentiality provisions in mandatory arbitration agreements.” It could be the case that the Supreme Court will have to finally put the issue to rest.

As the McFerran dissent is likely to become Board law once Biden appoints new Members, employers should review their arbitration agreements to ensure that they cannot be read to prevent employees from filing charges with the Board or discussing any settlement they might have with an employer over an employment-related dispute. Employers concerned about their confidentiality provisions should work with experienced labor counsel until the dust (hopefully) settles.