NLRB Addresses Several Issues Involving Mandatory Arbitration Agreements Following Supreme Court Opinion in Epic Systems

On August 14, 2019, the National Labor Relations Board (NLRB) issued its Supplemental Decision, Order, and Notice to Show Cause in Cordúa Restaurants, Inc. and Steven Ramirez Rogelio Morales and Shearone Lewis, 368 NLRB No. 43 (2019). The decision resolves several important issues of first impression involving mandatory arbitration agreements following the U.S. Supreme Court’s opinion in Epic Systems Corp. v. Lewis, 84 U.S. __, 138 S.Ct. 1612 (2018).

NLRB HOLDINGS

In summary, the major holdings from the NLRB’s decision in Cordúa Restaurants, Inc. are:

• Employers are not prohibited under the National Labor Relations Act (NLRA) from promulgating mandatory arbitration agreements in response to employees opting in to a collective action under the Fair Labor Standards Act (FLSA) or state wage and hour laws.
• Employers are not prohibited under the NLRA from informing employees that failing or refusing to sign a mandatory arbitration agreement will result in their discharge.
• Employers are prohibited from taking adverse action against employees for engaging in concerted activity by filing a class or collective action, consistent with the board’s long-standing precedent.

Background: Epic Systems and the NLRA

Section 7 of the NLRA protects employees’ rights to “self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” 29 U.S.C. § 157. Section 8(a)(1) of the NLRA safeguards those rights by making it an “unfair labor practice” for an employer to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7[.]” 29 U.S.C. § 158(a)(1).

In Epic Systems, the Supreme Court held employer-employee agreements containing class-and collective-action waivers and providing employment disputes are to be resolved through individualized arbitration do not violate the NLRA and must be enforced as written pursuant to the Federal Arbitration Act (FAA). 138 S.Ct.  at 1619, 1632. In so holding, the Supreme Court noted although Section 7 “may permit unions to bargain to prohibit arbitration, Section 7 “does not express approval or disapproval of arbitration. It does not mention class or collective action procedures. It does not even hint at a wish to displace the Arbitration Act[.]” Id. at 1624.

Holding #1:    The NLRA Does Not Prohibit Employers from Promulgating Mandatory Arbitration Agreements in Response to Employees Opting in to a Collective Action Under the FLSA or State Wage and Hour Laws.

Prior to the events at issue in the case, the respondent employer maintained an arbitration agreement that required employees to waive their “right to file, participate or proceed in class or collective actions (including a Fair Labor Standards Act (‘FLSA’) collective action) in any civil court or arbitration proceeding.” After a group of seven employees filed a collective action in federal court, which was eventually joined by several other employees, the employer distributed a revised arbitration agreement. Under the terms of the revised agreement, employees would additionally agree not to opt into collective actions.

The NLRB held the promulgation of such an agreement, even in response to Section 7 activity, does not violate the NLRA. Citing the Supreme Court’s opinion in Epic Systems, the NLRB held an agreement requiring employment-related claims be resolved through individual arbitration, rather than through class or collective litigation, does not restrict Section 7 rights in any way. Because the revised agreement did require employees to agree not to opt in to a collective action, the effect of that prohibition was simply to require employees to resolve their employment-related claims through individual arbitration rather than through collective actions.

Holding #2:    The NLRA Does Not Prohibit Employers from Informing Employees Failing or Refusing to Sign a Mandatory Arbitration Agreement Will Result in Their Discharge.

In connection with his distribution of the revised arbitration agreement described above, an assistant manager for the respondent employer explained employees would be removed from the schedule if they declined to sign it. After two employees objected to signing the agreement, the assistant manager stated he “wouldn’t bite the hand that feeds me” and he would instead “go ahead and sign it.” The employees argued these statements violated Section 8(a)(1) of the NLRA.

The NLRB held because Epic Systems permits an employer to condition employment on employees entering into an arbitration agreement that contains a class- or collective-action waiver, the assistant manager did not unlawfully threaten employees with reprisals under Section 8(a)(1). Instead, the NLRB characterized his statements as amounting “to an explanation of the lawful consequences of failing to sign the agreement and an expression of the view that it would be preferable not to be removed from the schedule.”

Holding #3:    Employers are Prohibited from Taking Adverse Action Against Employees for Engaging in Concerted Activity by Filing a Class or Collective Action.

Steven Ramirez, one of the employees who filed the aforementioned collective action against the respondent employer, argued respondent violated the NLRA by discharging his employment because he engaged in protected concerted activity by discussing wage issues with his coworkers and filing an FLSA collective action alleging minimum wage and overtime violations.

The NLRB sided with Ramirez, finding the Supreme Court’s interpretation of Section 7 in Epic Systems is consistent with longstanding NLRB precedent establishing Section 7 protects employees when they discuss their wages and other terms and conditions of employment. The NLRB also agreed Ramirez’s request to access his personnel records was similarly protected, as the access was sought for the purpose of verifying the respondent’s compliance with its obligations under state and federal minimum wage laws, and the request logically grew out of Ramirez’s protected concerted wage discussions with his coworkers. Further, the NLRB found Ramirez engaged in protected concerted activity by filing the FLSA collective action, as Section 7 has long been held to protect employees when they pursue legal claims concertedly. The NLRB reasoned while Epic Systems entitled the respondent to promulgate and maintain individual arbitration agreements, including promulgating such agreements in response to opt-in activity, and to enforce those agreements in court by seeking individual arbitration of the employees’ wage-and-hour claims pursuant to those agreements, it did not similarly entitle the respondent to discharge Ramirez for joining with his coworkers in filing a collective action to pursue those claims.

A copy of the NLRB’s full Decision in Cordúa Restaurants, Inc. may be obtained here.

IMPACT

At the outset, it is important to note the foregoing opinion is subject to formal revision before publication in the bound volumes of NLRB decisions. It may also be appealed to the appropriate U.S. Court of Appeals, and ultimately, to the U.S. Supreme Court.

The NLRB’s decision in Cordúa Restaurants, Inc. carries significant implications for employers subject to the NLRA and their respective employees. Under the decision, subject employers are permitted to promulgate mandatory arbitration agreements in response to employees opting in to a collective action under the FLSA or state wage and hour laws. Employers may also inform employees that failing or refusing to sign such mandatory arbitration agreements may result in their discharge.

However, the decision makes abundantly clear employers are still prohibited from taking any adverse employment action against employees for: 1) discussing their wages and other terms and conditions of employment; 2) requesting to access their personnel records where the access is sought for the purpose of verifying the employer’s compliance with its obligations under state and federal minimum wage laws; or 3) engaging in any protected concerted activity such as filing legal claims against the employer. Of course, this is a non-exhaustive list, which is limited to the actions addressed in the foregoing decision.

For more information regarding compliance with this decision, please contact your Dinsmore labor attorney.