NLRB Clarifies Employer Right to Require Mandatory Arbitration Agreements Following Supreme Court’s Epic Systems Decision

By Jennifer Dunn, Caroline Kane, and Bill Pokorny - Franczek P.C.

September 12, 2019

In a significant decision for employers, the National Labor Relations Board (NLRB) provided new guidance addressing the intersection of arbitration agreements and the National Labor Relations Act (NLRA). The NLRB’s recent decision in Cordúa Restaurants, Inc. expressly authorizes employers to modify arbitration agreements to prevent employees from opting into class action lawsuits in direct response to being sued. This decision follows the U.S Supreme Court’s 2018 decision in Epic Systems v. Lewis, which upheld the enforceability of arbitration agreements and rejected the proposition that such waivers violate the NLRA. Expanding on Epic Systems, the Cordúa NLRB held that warning employees that they will be discharged if they do not accept such an agreement, even when litigation is already pending, does not violate the NLRA.  

Cordúa Background

Cordúa Restaurants maintained arbitration agreements that required its employees to waive their right to file, participate, or proceed in class or collective actions.  Despite the existence of these agreements, seven employees filed a collective action against Cordúa Restaurants alleging violations of the FLSA and the Texas Minimum Wage Act. Thirteen other employees subsequently opted into the lawsuit.  In response, Cordúa Restaurants promulgated revised mandatory arbitration agreements to employees, requiring their express agreement not to opt-in to collective actions and to arbitrate FLSA claims on an individual basis. Further, Cordúa Restaurants notified employees that they would not be scheduled for any additional shifts unless they executed the revised arbitration agreements. When some employees objected, the employer’s representative stated that he “wouldn’t bite the hand that feeds me,” and instead would “go ahead and sign it.”  The employer also terminated Steven Ramirez, one of the seven employees who participated in filing the original lawsuit.

NLRB Decision

The NLRB considered two issues of first impression in the wake of Epic Systems: whether the implementation of a second, revised arbitration agreement after a lawsuit has been filed and whether threats to discharge those who refuse to sign the revised agreement violate the NLRA.  The NLRB made three notable holdings:

1.  Employees may revise mandatory arbitration agreements in response to employees’ collective action;
2.  Employers may lawfully advise employees that failing or refusing to sign a mandatory arbitration agreement can result in adverse employment actions, including termination; and
3.  Employers are prohibited from taking adverse employment actions against employees for engaging in concerted activity by filing a class or collective action.

First, the NLRB held that the issuance of the revised arbitration agreement, even in response to protected activity, does not violate the NLRA. The NLRB reasoned that the Supreme Court authorized such agreements in Epic Systems and held that requiring individual arbitration agreements does not restrict employee rights. Although the NLRB acknowledged that the employees were engaged in protected activity when they opted into the collective action, it clarified that “opting in” is only a “procedural step.” Therefore, an arbitration agreement that prevents employees from opting into a collective action does not prohibit an employee from exercising their Section 7 rights because they still have other options.  Notably, the NLRB has held that an employer may violate the NLRA by promulgating an otherwise lawful rule in response to protected activity because of the chilling effect that the new rule may have on the exercise of Section 7 rights.  But, the NLRB quickly distinguished those cases, observing that Section 7 does nothing to address class and collective actions. Here, because the NLRB found that opting into a collective action constitutes merely a procedure step, an enforceable arbitration agreement does not restrict or implicate the exercise of Section 7 rights and thus renders the agreement lawful.  Ultimately, the NLRB held that while certain rules restricting Section 7 activity violate the NLRA, the implementation of the revised arbitration agreement was lawful because no Section 7 right had been restricted.

Second, the NLRB determined that it was not unlawful for an employer to warn employees that they would be removed from a work schedule if they did not sign a revised arbitration agreement.  In so holding, the NLRB again relied on Epic Systems and reasoned that the case permits an employer to condition employment on employees entering into arbitration agreements.  Therefore, the remarks made by the employer’s representative in Cordúa were considered an explanation of the lawful consequences of failing to sign the agreement.  

The NLRB did find that Cordúa Restaurants violated the NLRA by terminating Steven Ramirez because Ramirez engaged in protected concerted activity when he discussed issues relating to his wages with his coworkers, and when he participated in the initial filing of the original lawsuit. While Epic Systems permits employers to enforce arbitration agreements requiring individual arbitration, the NLRB found that an employer still cannot discharge an employee for filing a collective action.

Insights For Employers

This case serves as yet another example of the strong trend in decisions under federal law supporting the use of arbitration agreements in employment. Arbitration agreements can be useful tools for employers seeking to limit their legal exposure, particularly to class and collective action litigation. However, arbitration is not a panacea. Some employers who have sought to force individual arbitration of wage and hour claims have found themselves instead enmeshed in multiple costly individual arbitration proceedings. Arbitration is not always the best forum for employers to address individual claims, as opportunities to obtain dismissal before trial may be more limited than in court, and opportunities for appeal are generally very limited. Employers seeking to use arbitration agreements should also pay close attention to developments under state law, as many states have made efforts to curtail the use of such agreements in the employment context.