By: Elizabeth P. Johnson and Lindsay M. Massillon
As published in the Daily Business Review Practice Focus/Labor & Employment on September 17, 2019
As many employers know, mandatory arbitration agreements can be a valuable tool in managing attorney fees and costs associated with employment law litigation—especially when it comes to class or collective action claims alleging violations of overtime or minimum wage under the Fair Labor Standards Act (FLSA). The U.S. Supreme Court made clear in Epic Systems v. Lewis, 584 U.S. __, 138 S.Ct. 1612 (2018) that arbitration agreements containing waivers for class or collective actions do not violate the National Labor Relations Act (NLRA) and must be enforced under the Federal Arbitration Act. Section 8(a)(1) of the NLRA prevents employers from, among other things, interfering with or restraining employees in the exercise of their rights under Section 7 of the NLRA (which permits employees to engage in concerted activity).
But, can an employer revise an existing arbitration agreement to include a provision that its employees also may not opt-in to a collective action, and terminate any employees who refuse to sign? The National Labor Relations Board (NLRB) says “yes.” In a matter of first impression, the board decided Aug. 14, that an employer, Cordúa Restaurants, did not violate the NLRA when it presented employees with a revised version of its arbitration agreement shortly after some employees filed a collective action. After filing the collective action, which alleged violations of the FLSA and the Texas Minimum Wage Act, several of the company’s employees were sent opt-in notices. In response, the company sought to make changes to its existing arbitration agreement. The initial version of the arbitration agreement required that employees waive their “right to file, participate, or proceed in class or collective actions.” The revised version required employees to additionally agree not to opt-in to a collective action. Management presented the revised arbitration agreement to current employees during a staff meeting, and employees were told that they would be removed from the schedule if they failed to sign. Three former employees then filed charges against the employer for alleged violations of the NLRA, claiming, among other allegations, that the revision of the arbitration in response to the filing of the collective action ran afoul of the act, and that the revision itself was unenforceable.
While the board agreed that the employer could not terminate an employee for filing a collective action or for opting-in, pursuant to the holding in Epic Systems, it was permitted to condition continued employment on the employees’ willingness to sign the arbitration agreement. It also was allowed to bar employees from opting-in to an action in addition to prohibiting filing of a collective action in court. The board also found that, even though the revised agreement was presented in response to the filing of a collective action, the employer’s actions were not coercive, illegally restrictive, or otherwise created a chilling effect on employees from engaging in concerted activity.
Dissenting in the opinion, member Lauren McFerran reasoned that the revised arbitration agreement was not promulgated solely for business reasons, but to discourage employees from opting into the collective action, in violation of the NLRA.
This is a surprising result from the board. Employers may want to take a second look at their existing arbitration agreements—or implement one for the first time—after a collective action is filed against it.
Elizabeth P. Johnson, is a shareholder at Fowler White Burnett where she focuses her practice on all aspects of labor and employment Law. Contact her at EJohnson@fowler-white.com.
Lindsay M. Massillon, is an associate at the firm and current president of the young lawyers section of the Broward County Bar Association. Massillon focuses her practice on labor and employment law and commercial litigation. Contact her at LMassillon@fowler-white.com.