NLRB Expands Employers' Ability To Require Class-Action Waivers In Arbitration Agreements
Last week, the National Labor Relations Board (the "Board" or the "NLRB") issued Cordua Restaurants, Inc., 368 NLRB No. 43 (Aug. 14, 2019), its first decision addressing employer conduct concerning class-action waivers in mandatory arbitration agreements since the Supreme Court issued its decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018).
In Epic Systems, the Supreme Court ruled that class action waivers in arbitration agreements do not violate the National Labor Relations Act (the "NLRA") and should be enforced as written, pursuant to the Federal Arbitration Act (the "FAA"). While significant, Epic Systems left a number of open questions about the practical effects of employers' use of class-action waivers.
The Cordua Restaurants decision answered three such unresolved legal issues. Specifically, the Board held that:
An employer may lawfully promulgate a collective action waiver in response to an employee class claim;
An employer may lawfully threaten employees with discipline for refusing to sign an arbitration agreement including a class waiver; but
An employer violates the NLRA by terminating (or otherwise disciplining) an employee for filing a collective action concerning terms and conditions of employment - even if the collective action is barred by the terms of an arbitration agreement the employee has signed.
The Cordua Restaurants decision gives employers more flexibility with respect to arbitration agreements, but reaffirms the Board's position that employers cannot discipline employees for filing collective actions concerning working conditions.
Section 7 of the NLRA grants employees (both union-represented and non-union-represented) the right to act collectively "for mutual aid and protection" with respect to matters concerning employee terms and conditions of employment. Section 8(a)(1) of the Act makes it unlawful for an employer to interfere with this employee right to engage in protected concerted activity.
The Board has applied Section 8(a)(1) to a myriad of employer conduct found to limit employee protected concerted activity. With respect to workplace rules, the Board has deemed it unlawful for an employer to promulgate an otherwise lawful work rule in response to employees engaging in Section 7-protected conduct. Lutheran Heritage Village-Livonia, 343 NLRB 646, 647 (2004). When such rules are implemented in response to protected conduct, and are enforced through disciplinary action, they tend to have a "chilling" effect on Section 7-protected conduct.
In January 2012, the Board ruled that employment agreements requiring employees to submit employment disputes to arbitration on an individual basis, instead of collectively in court, violate Section 8(a)(1). D.R. Horton, Inc., 357 NLRB 2277 (2012). The Fifth Circuit later overruled D.R. Horton, holding that it violated the Federal Arbitration Act. D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013). Over the next few years, the Board's D.R. Horton holding was tested in several other federal circuit courts, which issued conflicting decisions regarding the lawfulness of class action waivers in arbitration agreements.
In its 2018 Epic Systems decision, the Supreme Court resolved this split among the federal circuit courts by ruling such agreements permissible. However, while the Court stated in Epic Systems that it was "pretty unlikely" that Section 7 of the NLRA encompassed a right to file collective actions, the Court did not resolve that question, thereby leaving employers uncertain about the broader implications of the ruling.
In Cordua Restaurants, the employer required its employees to sign an arbitration agreement waiving their right to file class or collective actions. After a group of employees brought a collective action under the federal Fair Labor Standards Act ("FLSA"), alleging the employer had committed wage violations, the employer terminated three of the employees participating in the collective action, and also required its employees to sign a revised arbitration agreement that explicitly prohibited employees from opting into collective actions against the employer. In distributing the revised agreement to the workforce, the employer informed its employees that any employee who refused to sign the revised agreement would be removed from the work schedule.
The terminated individuals filed NLRB charges, alleging the employer had violated the NLRA by, among other things (1) discharging employees in retaliation for their filing the collective FLSA action; (2) implementing the revised arbitration agreement in response to employee-protected conduct (i.e., participating in the collective claim); and (3) threatening to terminate employees who refused to sign the revised agreement.
The Board ruled that the employer's implementation of a revised class action waiver in response to the collective action did not violate the NLRA, despite the Board's assumption that opting into a collective action constitutes conduct protected by Section 7. The Board distinguished the promulgation of the revised arbitration agreement from work rules found to have been unlawfully implemented in response to employee protected conduct under Lutheran Heritage, writing "those cases involve the promulgation of rules that do restrict the exercise of Section 7 rights." (emphasis in original).
The Board also found that the revised arbitration agreement did not unlawfully restrict Section 7 rights because opting into a collective action is merely a procedural requirement for participating in a collective claim, and an agreement waiving that right is enforceable in court or by an arbitrator. The Board further reasoned that the employer's promulgating the revised arbitration agreement did not chill employee protected conduct because the agreement "simply [required] employees to resolve their employment-related claims through individual arbitration rather than through collective actions," which does not violate Section 7 under Epic Systems.
Based on Epic Systems and the Board's determination that the employer's promulgating the revised class action waiver was lawful, the Board also found lawful the employer's threats to remove from the work schedule employees who refused to sign the revised arbitration agreement. The Board characterized such statements as a mere "explanation of the lawful consequences of failing to sign the agreement . . ."
However, the Board did not go so far as to conclude that filing a collective action is not protected activity under the NLRA. To the contrary, the Board held that the NLRA "protect[s] employees when they pursue legal claims concertedly." Thus, the Board concluded, the employer in Cordua Restaurants violated the NLRA by terminating an employee for initiating a collective action.
Cordua Restaurants clarifies the limits of lawful employer conduct as it relates to class action waivers, by confirming that employers may implement such waivers in response to Section 7-protected activity and condition employment on employees' signing such agreements. Conversely, the decision makes clear that it is not permissible for an employer to terminate or otherwise punish employees for participating in a collective action.
Employers should take note, however, that mandatory arbitration agreements are not without limits. In two recent decisions, the Board invalidated mandatory arbitration agreements that employees could reasonably interpret as limiting their right to file NLRB charges. In Prime Healthcare, 368 NLRB No. 10 (June 18, 2019), the Board clarified that "[n]othing in the Supreme Court's decision in Epic Systems disturbed" Board precedent prohibiting employers from restricting an employee's right to file Board charges, "including through restrictions contained in arbitration agreements."
Just last week, the Board upheld an Administrative Law Judge decision invalidating an arbitration agreement for the same reason, as the agreement required the arbitration of "any and all disputes" arising "from the employment relationship." Bud's Woodfire Oven LLC d/b/a Ava's Pizzeria, 368 NLRB No. 45 (Aug. 16, 2019). Carve-out language stating that the agreement did not "preclude [the] [e]mployee from filing charges or from participating in an administrative investigation of a charge before any appropriate government agency" did not effectively overcome the agreement's suggestion of the futility of filing NLRB charges.
Given these two recent holdings, employers should carefully review arbitration agreements to ensure that they do not explicitly or implicitly dissuade employees from filing unfair labor practice charges. Moreover, the latter decision serves as an important reminder that disclaimer language cannot overcome a workplace policy's implication that it improperly limits employee Section 7 rights.
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If you have any questions about class action waivers, mandatory arbitration agreements, or any other labor relations issues, please contact one of our experienced labor attorneys, who regularly assist employers with all types of labor-management relations matters.