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The National Labor Relations Board Upholds Implementing Class Waivers in Response to Class Claims

In Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018) (Gorsuch, J.), the Supreme Court of the United States held in a 5-4 decision that class- and collective-action waivers and stipulations that employment disputes must be resolved by individualized arbitration do not violate the National Labor Relations Act (“NLRA”) and must be enforced pursuant to the Federal Arbitration Act.  In its recent Cordúa Rests., Inc.1 decision, the National Labor Relations Board (the “Board”) took Epic Systems two steps further, holding that (i) an employer can require its employees to sign class waivers and individualized arbitration agreements in response to class claims against the employer and (ii) an employer may warn its employees that failure to sign the updated arbitration agreement will result in disciplinary action. 

The Underlying Dispute

Cordúa Restaurants, Inc. (“Cordúa”) operates several Latin-themed restaurants in the Houston, Texas area.  In January 2015, a group of seven employees filed a collective action against Cordúa in the United States District Court for the Southern District of Texas, alleging violation of the Fair Labor Standards Act and the Texas Minimum Wage Act.  On September 29, 2015—while the Southern District of Texas Action was pending and after additional employees opted in—Cordúa issued a revised arbitration agreement to its employees requiring them 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” and specifying that they “cannot file or opt-in to a collective action[.]”2  Additionally, one of Cordúa’s assistant managers told employees that they would be removed from the work schedule if they did not sign the revised arbitration agreement.  Around this time, Cordúa also terminated three employees who opted into the Southern District of Texas action, although Cordúa provided other reasons for their termination.3

The employees challenged the lawfulness of Cordúa’s tactics.  The matter was first heard by an administrative law judge (“ALJ”) who, in a December 9, 2016 decision, found that Cordúa’s revised arbitration agreement was unlawful and that the termination of one of the three employees was improper.  The Supreme Court issued its decision in Epic Systems approximately one-and-a-half years after the ALJ ruled, and the Board sought to square the ALJ’s ruling with recent Supreme Court precedent.

The Board’s Decision

The Board considered two questions of first impression:  (i) whether the NLRA prohibits employers from promulgating mandatory arbitration agreements in response to employees opting into a collective action; and (ii) whether the NLRA prohibits employers from imposing disciplinary measures on an employee who refuses to sign a mandatory arbitration agreement.  First, and contrary to the ALJ’s pre-Epic determination, the Board found that the NLRA “contains no such proscriptions”4 and noted that, pursuant to the Supreme Court’s Epic Systems decision, the Board “has routinely dismissed complaints alleging that employers unlawfully maintained and/or enforced arbitration agreements that require employees, as a condition of employment, to waive their right to pursue employment disputes through class or collective actions.”5  Second, the Board held that, pursuant to Epic Systems, Cordúa’s issuance of the revised arbitration agreement does not violate the NLRA because the agreement “does not restrict” Section 7 activity (protected concerted activity; i.e., the right to unionize or discuss wages or other conditions of employment with coworkers) “in any way,” and because “opting in to a collective action is merely a procedural step” since “the effect . . . was simply to require employees to resolve their employment-related claims through individual arbitration rather than through collective actions.”1

The Board further held that Cordúa’s assistant manager did not “unlawfully threaten employees with reprisals” by explaining that they may be fired for failure to sign the revised arbitration agreement.  The Board noted that, because Epic Systems permits employers to condition employment on employees entering into arbitration agreements containing class- and collective-action waivers, the statements by Cordúa’s assistant manager “amounted 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.”7  However, the Board did reaffirm the ALJ’s decision that the termination of one employee because he “discussed their wages and other terms and conditions of employment” with coworkers and “fil[ed] the FLSA collective action” violated the NLRA.8

Interpreting the Board’s Decision

The Board’s decision in Cordúa resolved questions left unanswered by Epiq Systems and, on balance, is quite favorable for employers.  The Board indicated its willingness to interpret Epic Systems broadly to uphold arbitration agreements that include class- and collective-actions both before and during pending litigation.  The Board also sanctioned the use of disciplinary measures, such as removing employees from a work schedule, for refusing to sign the revised arbitration agreements.  While it remains to be seen whether federal courts will defer to the Board’s decision in Cordúa, employers without arbitration provisions who are sued in wage and hour collective or class actions now have the added tool in their arsenal of updating their arbitration provisions mid-stream in an attempt to defeat the pending litigation.

Weil’s class action and employment litigators will continue to monitor this case, including how it is construed by the federal courts.

1 368 NLRB No. 43 (2019).

2 Id. at 17.

3 Cordúa terminated three employees who opted into the Southern District of Texas action but asserted other reasons for their terminations.  Cordúa stated that Steven Ramirez was terminated for dishonesty, Rogelio Morales was terminated due to customer complaints, and that Shearone Lewis was terminated for inappropriate conduct.

4 368 NLRB No. 43 (2019) at 1.

5 Id. at 2.

6 Id. at 2, 3; see also id. at 2-3 (“[A]n arbitration agreement that prohibits employees from opting in to a collective action does not restrict the exercise of Section 7 rights and, accordingly, does not violate the Act.”).

1 Id. at 4.

8 Id. at 1, 4.

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