NLRB Expands Scope of Mandatory Arbitration Agreements

By Eric Hemmendinger & Chad M. Horton - Shawe Rosenthal LLP

August 16, 2019

The National Labor Relations Board has now addressed the use of mandatory arbitration agreements following the U.S. Supreme Court’s 2018 decision in Epic Systems v. Lewis, which upheld the enforceability of arbitration agreements containing waivers of the right to bring class or collective actions over employment-related disputes, rejecting the NLRB’s then-position that such waivers violate the National Labor Relations Act (NLRA). In Cordua Restaurants, Inc., the Board made three notable holdings expanding the scope of such agreements:

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

It bears emphasis, however, that this ruling does not affect the ability of federal and state courts to control communications between employers and potential class or collective action members.  In some instances, courts have invalidated arbitration agreements signed after the start of litigation.  After a lawsuit has been filed, an employer should consult with counsel before seeking arbitration agreements from employees.

Case Background: The employer, Cordua Restaurants, maintained an arbitration agreement that required employees to waive their right to file, participate, or proceed in class or collective actions. In January 2015, seven employees who had earlier signed the arbitration agreement filed a collective action against the employer in federal court, alleging violations of the Fair Labor Standards Act and state minimum wage law. Additional employees then opted into the collective action. In response to the opt-ins, the employer distributed a revised arbitration agreement, adding language that employees further agreed not to opt-in to collective actions. The employer stated that any employee who declined to sign the revised agreement would be removed from the schedule. Additionally, the employer terminated one of the seven employees bringing the original suit.

The NLRB’s Decision: In a 3-1 decision, with Member McFerran dissenting, the NLRB first addressed two issues of first impression on the heels of the Supreme Court’s holding in Epic Systems.

First, the NLRB held that the employer’s issuance of the revised agreement, even in response to protected employee activity, does not violate the NLRA. The NLRB reasoned that Epic Systems made clear that an agreement requiring employment disputes to be resolved through individual arbitration does not restrict employee rights under Section 7 of the NLRA. Thus, the NLRB determined that the Epic Systems holding requires the conclusion that an agreement waiving an employee’s right to opt-in to a collective action also does not restrict employees’ Section 7 rights. And while the NLRB will find that rules restricting Section 7 activity that are promulgated in response to protected activity violate the NLRA, the implementation of the revised agreement was lawful because no Section 7 right had been restricted – particularly where, as here, nothing in the revised agreement suggested that employees would be disciplined for failing to abide by its terms.

Second, the NLRB determined that it was not an unlawful threat for the employer to state that employees who declined to sign the revised agreement would be removed from the schedule. The NLRB noted that Epic Systems permits an employer to condition employment on employees entering into agreements containing class- and collective-action waivers. Thus, the NLRB reasoned that the manager’s statement was an “explanation of the lawful consequences of failing to sign the [revised agreement]…”

Finally, consistent with NLRB precedent, the NLRB held that the employer violated the NLRA by terminating the employee, Ramirez. The NLRB found that Ramirez engaged in protected concerted activity by discussing issues relating to his wages with coworkers, requesting his personnel records in order to verify the employer’s compliance with federal and state wage and hour laws, and by filing the collective action. While Epic Systems permits employers to enforce agreements requiring employment disputes to be resolved through individual arbitration, it does not address whether an employer violates the NLRA by disciplining an employee for filing a collective action against his or her employer. Thus, the NLRB found that the employer violated the NLRA when it terminated Ramirez for his protected concerted activities.  Terminating an employee for filing a lawsuit also violates the Fair Labor Standards Act.

Practical Impact: Under Epic Systems, employers can require employees to sign arbitration agreements containing waivers of their right to bring class or collective actions. Building on that case, the NLRB held that the National Labor Relations Act does not prohibit an employer from seeking arbitration agreements from employees after a lawsuit has been filed, and from telling employees that they will be removed from the schedule if they do not sign the agreements.  However, several cautions are in order.  First, the ruling is subject to appeal, where it will be attacked furiously by plaintiff-side lawyers.  Second, this ruling does not affect the ability of courts to regulate communications between employers and potential class or collective actions members.  Courts have invalidated arbitration agreements they believed were improperly obtained.  Third, even if an employer gets employees to sign arbitration agreements, it could still face collective or class litigation from former employees.  And finally, pushing claims into individual arbitration is not necessarily cost effective; the cost of numerous arbitration cases can be onerous.