NLRB Issues First Decision Addressing Mandatory Arbitration Agreements Since Epic Systems (US)
If you’ve been following our blog, you already know that the topic of employer-mandated arbitration agreements has been a hot issue in recent years for government agencies and in the state and federal courts. Most notably, in May of last year, the United States Supreme Court issued its highly-anticipated decision in Epic Systems v. Lewis, in which it confirmed that employers may require employees to enter into mandatory arbitration agreements as a condition of employment without violating the National Labor Relations Act (“Act”). As you may recall, Epic Systemsarose out of dispute in which the National Labor Relations Board (“NLRB” or “Board”) took the position that employer-mandated arbitration agreements requiring that employees waive the right to engage in class or collective litigation are unenforceable because Section 7 of the Act protects an employee’s right to engage in protected concerted activity, which the NLRB argued includes litigating employment-related disputes as class or collective actions. The Supreme Court rejected this position, finding that class and collective litigation are not substantive legal rights, but rather procedural creations of the Federal Rules of Civil Procedure and the Fair Labor Standards Act (“FLSA”), and as such, are not rights traditionally protected by the Act. Our more in-depth review of the Epic Systems decision is here.
As a result of the Epic Systems decision, employers are unlikely to see an abundance of future NLRB litigation involving mandatory arbitration agreements. Indeed, since Epic Systems, the Board has been routinely dismissing charges and complaints involving mandatory arbitration provisions that require employees to waive class and collection action rights. However, one case that had been filed with the Board prior to the Supreme Court’s Epic Systems decision presented a slight twist on the issue. That case – Cordúa Restaurants, Inc. – was decided by the NLRB on August 14, 2019.
The key question before the Board in that case was whether an employer’s mandatory arbitration agreement containing class and collection waivers that was implemented in direct response to employees opting into an FLSA collective action lawsuit against the employer violated Section 8(a)(1) of the Act, which prohibits employers from interfering with employee rights to engage in protected concerted activity. NLRB Chairman John F. Ring, and Members Marvin E. Kaplan and William J. Emanuel made up the Board majority, which held that, consistent with Epic Systems, the employer did not violate the Act by promulgating a revised arbitration agreement containing class and collective waivers under these circumstances.
Seven employees of Cordúa Restaurants had filed a collective action under FLSA alleging various wage law violations against the employer. A number of other employees subsequently opted in to this lawsuit. Although the employer already had a mandatory arbitration agreement in place prior to the litigation being filed, it subsequently – and in direct response to the employee opt-ins to the litigation – revised its arbitration agreement to expressly prohibit opting into collective litigation. The employer then circulated the revised agreement among its employees and informed them they must sign it as a condition of their continued employment. Specifically, employees were told they would not be scheduled for any future work shifts until they signed the agreement. When a few employees complained to a manager about the new agreement, the manager responded that the employees should “not bite the hand that feeds them” and instructed them to sign it.
In finding that the employer did not violate the Act by issuing this revised agreement, or threatening the future of the employees’ employment if they did not sign it, the Board held, while “we assume, without deciding, that opting in to collective action is protected concerted activity under Section 7,” per the Supreme Court’s opinion in Epic Systems, the agreement “requiring that employment related claims be resolved through individual arbitration, rather than class or collective litigation, does not restrict Section 7 rights in any way.” These ostensibly paradoxical statements reflect both that the Board still takes the position that Section 7 protects the right of employees to participate in class and collective actions of employment matters, while nonetheless acknowledging that its hands are tied with regard to whether employers and employees can contract around this right through mandatory arbitration agreements. The Board also held that the employer’s threats not to schedule future shifts for those employees who failed or refused the sign the revised agreement, and the manager’s threats to the employees who complained about the agreements, did not violate the Act.
In its decision, the Board also demonstrated the reach of its position that collective action litigation is protected by Section 7 when it held that, despite the employer’s right to implement arbitration agreements with terms prohibiting participation in collective action litigation, Cordúa Restaurants violated the NLRA when it terminated the employment of an employee because he opted in to the FLSA collective action. The Board stated that although the employer could seek to enforce its arbitration agreement in court or arbitration in response to the employee opt-in, it could not take an adverse employment action against the employee based on that action, such as termination of employment. Thus, the Board’s decision draws a line between arbitration agreements and other types of employer action that may tend to interfere with Section 7 employee activities.