Arbitration Agreements with Class and Collective Action Waivers Do Not Violate the NLRA

7 Min Read By: Joan B. Lopez

On August 14, 2019, the National Labor Relations Board (the Board) issued a decision in Cordúa Restaurants, Inc. and Steven Ramirez and Rogelio Morales and Shearone Lewis, 368 NLRB No. 43 (2019), that reaffirms the status quo concerning the lawfulness of an employer’s ability to require its employees to waive their option to file or participate in class and collective actions. Relying heavily on Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), the U.S. Supreme Court decision that held that arbitration agreements with class and collective action waivers in the employment context are generally enforceable, the Board held that employers can lawfully prohibit employees from filing or participating in class or collective actions, including any that are pending, by requiring them to sign arbitration agreements containing class and collective action waivers. In addition, the Board ruled that employers may threaten employees with disciplinary action, including termination, if they fail to sign such agreements, without violating the National Labor Relations Act (the Act).

The Cordúa case arose because in January 2015 seven employees of Cordúa Restaurants (Respondent) filed a collective action in the U.S. District Court for the Southern District of Texas alleging Respondent’s violations of the Fair Labor Standards Act and the Texas Minimum Wage Act. Several months later, approximately 13 employees had joined or opted into the case. Due to the growing number of opt-in plaintiffs, the Respondent issued a modified arbitration agreement that prohibited employees from opting into collective actions, which in effect applied to the pending lawsuit. The revised agreement provided: “I agree that I cannot file or opt-in to a collective action under this Agreement, unless agreed upon by me and the Company in writing.”

The Board grappled with two issues of first impression in this case: (1) whether the Act prohibits employers from promulgating agreements with class and collective action waivers in response to employees opting into a collective action; and (2) whether the Act prohibits employers from threatening to discharge an employee who refuses to sign a mandatory arbitration agreement containing class and collective action waivers. The Board answered both issues in the negative.

With respect to the first issue, the Board reversed the administrative law judge’s finding that the Respondent’s promulgation of the revised arbitration agreement violated section 8(a)(1) of the Act, which makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of rights guaranteed in Section 7 of the Act.” The Board reasoned that because an employer can lawfully maintain or enforce class and collective action waivers as a condition of employment without violating the Act per Epic, and because opting in is a procedural step to join a collective action, an arbitration agreement that prohibits employees from opting into a collective action also does not violate the Act. However, the Board seemed to contradict this view that opting in is a mere procedural step by also assuming, without deciding, that opting into a collective action lawsuit is a protected concerted activity under the Act. Despite this, the Board ultimately found that the revised agreement did not restrict the employees’ section 7 rights to participate in concerted activity, which the Board assumed encompassed the right to opt into a collective action, because the agreement’s purpose was not to restrict section 7 rights, but to require employees to resolve employment-related claims through individual arbitration rather than through collective actions.

As for the second issue, the Board held that the assistant manager’s statements in response to employees’ concerns about signing the arbitration agreement did not violate the Act. In Cordúa, the employees’ assistant manager distributed the revised agreement and explained that employees would be removed from the schedule if they declined to sign the agreement. After two employees objected to signing it, the assistant manager warned that he “wouldn’t bite the hand that feeds me” and that he would instead “go ahead and sign it.” The Board reasoned that the assistant manager’s statements were not equivalent to an unlawful threat because per Epic, an employer can lawfully condition employment on the execution of an arbitration agreement with class and collective action waivers. Hence, the Board described the assistant manager’s statements as mere explanation of the “lawful consequences of failing to sign the agreement.”

The Board also adopted the administrative law judge’s finding that the Respondent violated the Act by terminating an employee after he engaged in the protected concerted activity of discussing issues relating to his wages with his co-workers and filing a collective action under the FLSA. Relying on Epic, the Board drew the line between subjecting an employee to disciplinary action for refusing to sign an arbitration agreement with class and collective action waivers, which is lawful, and disciplining, including terminating, an employee after filing a class or collective action, for concerted activity, which is unlawful.

It is surprising that the Board’s adoption of the administrative law judge’s decision was influenced by the Board’s reading of Epic. The Board wrote that nothing in Epic calls into question its longstanding precedent that section 7 protects employees when they pursue legal claims concertedly, thereby implying that filing a collective action is a protected concerted activity under section 7. However, in Epic, the Supreme Court opined that section 7 of the Act did not confer a right to pursue class or collective actions. Hence, the Board’s reliance on Epic as its legal foundation when the Board and the Supreme Court differ significantly on this important point raises more questions than it answers.

In a dissenting opinion, Member Lauren McFerran pointed out that the Board’s decision ignored its longstanding precedents, which have consistently held that an employer’s rule or policy is unlawful when it is promulgated in response to the employees’ protected concerted activity, even if that rule or policy is lawful on its face. Member McFerran reasoned that the Respondent revised the arbitration agreement in response to the employees’ filing and/or subsequently joining the collective action to discourage the employees from engaging in a protected activity, namely opting into the lawsuit. Hence, for Member McFerran, the promulgation of a facially lawful rule or policy in response to a protected activity was sufficient to violate the Act.

Member McFerran also found that the assistant manager’s statements about removal from the job schedule constituted an unlawful threat that violated section 7 of the Act. Member McFerran interpreted the assistant manager’s statements as attempts to silence discussion after the employees exercised their section 7 right by raising concerns and questions about the revised arbitration agreement. Member McFerran explained that a reasonable employee would have understood the assistant manager’s statement as a threat of removal from the schedule and/or discharge for raising concerns about the terms and conditions of their employment.

Despite the lack of clarity in some areas of the Board’s decision, it is undeniable that Cordúa is an addition to an employer’s litigation toolkit that offers legal support to limit or reduce an employer’s financial exposure in wage-and-hour class and collective actions. To be sure, the utilization of these class and collective action waivers in arbitration agreements is not without its limitations. For instance, employers should still be mindful of applicable contract defenses, such as fraud, duress, or unconscionability, that can challenge the validity of these agreements. Moreover, at least in the collective action context, Epic and Cordúa will most likely not disturb the settled law that the existence of arbitration agreements with collective action waivers will not defeat the first stage of conditional certification under the FLSA in that it raises a merit-based determination. Finally, requiring an employee to sign an arbitration agreement and terminating that employee when he or she refuses to do so may be deemed as interference with an employee’s rights or retaliatory under other statutes.[1]

[1] Goldsmith v. Bagby Elevator Co., Inc., 513 F.3d 1261, 1267–68 (11th Cir. 2008) (affirming that employer was not entitled to a judgment as a matter of law against employee’s claim of retaliation under Title VII and 42 U.S.C. § 1981 when employer terminated employee for failing to sign an arbitration agreement that applied to his pending charge with the Equal Employment Opportunity Commission); Bayer v. Neiman Marcus Group, Inc., 2018 WL 2427787, at *11 (N.D. Cal. May 30, 2018) (finding that plaintiff created a triable issue of fact that defendant interfered with plaintiff’s rights under section 503(b) of the Americans with Disabilities Act by threatening to terminate plaintiff if he did not sign the arbitration agreement even after plaintiff explained he did not want to do so because he did not want to be forced to arbitrate the claim raised in his pending EEOC charge); Rightnour v. Tiffany & Co., 239 F. Supp. 3d 744, 754 n.5 (S.D.N.Y. 2017) (“Indeed, Tiffany may have been concerned about the legality of terminating an employee with a pending claim before the EEOC for refusing to agree to arbitration.”).

By: Joan B. Lopez

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