NRLB Upholds Arbitration Confidentiality Provisions
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By Cameron Michelsen

The National Labor Relations Board (“NLRB”) recently upheld confidentiality provisions in arbitration agreements in relation to section 7 of the National Labor Relations Act (“NLRA”) and the Federal Arbitration Act (“FAA”).

The confidentiality provision in California Commerce Club, Inc., 369 N.L.R.B. No. 106 (2020), provided that the “arbitration shall be conducted on a confidential basis and there shall be no disclosure of evidence or award/decision beyond the arbitration proceeding.” The complaint alleged that the confidentiality provision violates section 7 of the NLRA, which guarantees the right of employees to discuss with their coworkers their terms and conditions of employment.

First Trip to the NLRB

Administrative Law Judge Amita Baman Tracy agreed, writing that the provision “explicitly limits employees’ right to discuss terms and conditions of employment such as wages.” She found that the provision was overly broad because a reasonable employee would construe the term “evidence” to include all parts of the dispute, including the circumstances that led to the dispute. The Board adopted her findings, and the employer appealed to the D.C. Circuit. The case was stayed while the Supreme Court decided Epic Systems Corp v. Lewis, 138 S. Ct. 1612 (2018). During that time, the NLRB created a new standard, under Boeing Co., 365 N.L.R.B. No. 154 (2017), for determining if a facially neutral law when reasonably interpreted would interfere with section 7 rights. After Boeing and Epic Systems, the D.C. Circuit remanded the case to the Board for further proceedings.

On Remand: Arbitration Confidentiality Agreements and the NLRA are Compatible

The Board reversed its prior decision, finding that the confidentiality provision did not violate the NLRA. The Board reasoned that confidentiality provisions needed to be judged based on the “scope [of the confidentiality provision], the interests implicated, and the policies of the Act.” The provision at issue prohibited disclosing the Arbitrator’s decision and Award as well as any evidence learned through the arbitration. It did not ban discussing information that the individual had prior to the arbitration or learned through different means. The Board stated that a reasonable interpretation of the provision would not make information already known undisclosable merely because it was also introduced in the arbitration; it would only apply to information that was disclosed during the course of the arbitration. The Panel admitted that the latter would restrict an employee’s ability to discuss certain terms and conditions of employment as to the Award or decision of the Arbitrator, restricting some activity protected by section 7. To determine if the provision violates the NLRA, the rule must be balanced against “any legitimate employer interests served by the rule.” The Board did not decide this issue and assumed for purposes of argument that the provision would violate section 7 if it was an “employer-promulgated work rule.” Since the provision was one created within an arbitration agreement, the Board looked to see if the provision was shielded by the FAA.

The FAA

The Board quoted American Express v. Italian Colors Restaurant, 570 U.S. 228, 233 (2013), stating that arbitration agreements must be enforced according to their terms even “for claims that allege a violation of a federal statute, unless the FAA’s mandate has been ‘overridden by a contrary congressional command.’” It noted that the party seeking to prove a contrary congressional command must “[show] a clearly expressed congressional intention that such a result should follow.” Citing Epic Systems, the Board found that NLRA did not mention confidentiality agreements neither promoting nor prohibiting them, nor did it provide any indication that the NLRA superseded the FAA. The confidentiality provision here applied only to the evidence and discussions that occurred in the arbitration; it did not apply to any information that an employee had already acquired previous to the arbitration. The Board noted that if a confidentiality provision went beyond the arbitration proceeding, the evidence disclosed or the Arbitrator’s decision would not be protected by the FAA and would indeed violate NLRA section 7. The Board ordered that the arbitration proceed with the confidentiality clause included.

Securities Industry Impact

While the Board upheld this arbitration agreement, it was fairly narrow – calling for confidentiality of evidence and the Award. This is generally different than the scope of confidentiality sought in FINRA arbitrations. Firms often seek confidentiality of all documents exchanged during discovery regardless of whether they are ultimately introduced as evidence during the arbitration hearing; however, the Award itself is publicly available. Notwithstanding broad confidentiality agreements, firms are required by FINRA rules to carve out disclosures to regulatory bodies. FINRA reminded firms of this obligation in Regulatory Notice 14-40.

(ed: This Squib was authored by Cameron Michelsen, a 3L at St. John’s School of Law. He is currently an intern with the school’s Securities Arbitration Clinic, assisting investors with disputes against their brokers.) (SAC Ref. No. 2020-26-03)

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