On August 14, 2019, the NLRB issued its first decision addressing employer conduct related to mandatory arbitration agreements and Section 7 activity since the Supreme Court decided Epic Systems Corp v. Lewis, 584 U.S. __, 138 S.Ct. 1612 (2018).  In Epic Systems (discussed more fully here), the Supreme Court held that agreements between employers and employees which include mandatory arbitration clauses and waivers of class and collective action rights do not violate the NLRA, and are enforceable as written under the Federal Arbitration Act.

In Cordúa Restaurants, Inc., 362 NLRB No. 43 (2019), the Board (Chairman Ring and Members Kaplan and Emanuel joining the majority; Member McFerran joining in part and dissenting in part) answered important questions of first impression regarding mandatory arbitration decisions in the wake of Epic Systems, including:

  • whether employers are permitted to promulgate mandatory arbitration agreements in response to Section 7 activity;
  • whether employers are permitted to inform employees they may be discharged if they refuse to sign such an agreement; and
  • whether employers violate the Act by discharging an employee for filing a class or collective action pertaining to wages, hours, or other terms and conditions of employment.

Factual Background

Prior to January 2015, employer Cordúa Restaurants, Inc. maintained mandatory arbitration agreements for all of its employees that prohibited commencing or joining Rule 23 class action lawsuits, but did not explicitly prohibit opting into collective actions under the Fair Labor Standards Act (“FLSA”).  Consequently, in January 2015, a group of employees initiated and opted-in to a collective action alleging wage violations under the FLSA and the Texas Minimum Wage Act.  In response, Cordúa issued a new, modified arbitration agreement, which stated in pertinent part:

I agree that I am waiving my 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) . . . Therefore, 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.

Cordúa required all employees to sign the new agreement.  In December 2015, Assistant Manager Alex Nyuyen informed employees they would be removed from the schedule and terminated if they did not sign the agreement.

Around this time, Cordúa terminated three employees who had opted-in to the collective action, asserting that Steve Ramirez was terminated for dishonesty; Rogelio Morales due to customer complaints; and Searone Lewis due to inappropriate conduct.  The NLRB General Counsel argued the employer’s proffered motivations were pretextual, and they were terminated due to their involvement in the FLSA collective action, which the GC argued was protected activity under the NLRA.

The Administrative Law Judge’s Decision

The Administrative Law Judge issued her decision on December 9, 2016, before Epic Systems was decided.  As such, the ALJ found that the arbitration agreement was an unlawful interference on employees’ Section 7 rights pursuant to Board precedent, and did not reach the issue of whether or not the promulgation of the new agreement in response to the FLSA collective action was unlawful.  The ALJ further found that Assistant Manager Nguyen’s statements to employees regarding signing the new arbitration agreement were coercive and unlawful.

With respect to the allegedly unlawful employee discharges of Ramirez and Lewis, the ALJ found that the General Counsel established a prima facie case under Wright Line, 251 NLRB 1083 (1980), which Cordúa failed to adequately rebut by demonstrating it would have terminated the employees for legitimate business reasons notwithstanding their protected activity.

Regarding the discharge of Morales, however, the ALJ upheld the termination, finding that although Morales was engaged in protected activities due to his involvement in the collective action, Cordúa legitimately terminated him due to a customer complaint, not his protected activities.

The Board’s Review

Promulgation of the New Mandatory Arbitration Agreement

Based on the Supreme Court’s landmark holding in Epic Systems, the Board first found that Cordúa’s maintenance of a mandatory arbitration agreement that contained class and collective action waivers was lawful under the Act, reversing the ALJ’s finding based on pre-Epic precedent.

The Board then held that because Epic established that mandatory arbitration agreements with class and collective action waivers do not restrict Section 7 rights in any way, and because opting into a collective action is “merely a procedural step” to participating in a FLSA collective action, “it follows that an 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.”

Although the Board acknowledged it has held in other cases that an employer may violate the Act by promulgating an otherwise lawful rule in response to protected activity (citing cases involving no-solicitation rules, rules prohibiting employees from making secret audio recordings, among others), the Board distinguished those cases because they involved the promulgation of rules that did restrict the exercise of Section 7 rights.  Here, by contrast, the Board found, the promulgation of the revised arbitration agreement “had no such effect” on Section 7 rights given the Supreme Court’s holding in Epic Systems.

Assistant Manager Nguyen’s Statements

Because, under Epic Systems, employers are permitted to condition employment on employees signing mandatory arbitration agreements, the Board also found that Nguyen’s statements to employees did not constitute unlawful threats.  On the contrary, the Board found that “his statements 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.”

Discharges of Ramirez, Lewis, and Morales

With regard to the discharge of Ramirez, the Board adopted the ALJ’s finding that he was engaged in protected activity when he filed the FLSA collective action.  Further, although Epic Systems permitted Cordúa to distribute the lawful new agreement in response to Section 7 activity, the case did not govern discipline or discharge of employees engaging in the underlying protected activity—in this case, the filing or participation in the collective action.  The Board agreed that Cordúa’s stated reason for Ramirez’s discharge was pretextual, that his termination was motivated by his protected activity, and Cordúa failed to proffer a legitimate reason it would have discharged him notwithstanding his protected activity.  The Board held Ramirez’s termination thus violated the Act.

The Board also affirmed the ALJ’s findings and conclusion that Cordúa’s discharge of Morales was lawful.  However, as to the discharge of Lewis, the Board reversed the ALJ’s decision, finding that Cordúa adequately established it would have discharged her even absent her protected activity, thus successfully rebutting the General Counsel’s prima facie case under Wright Line.

Member McFerran’s Dissent

While Member McFerran agreed with the majority’s conclusions regarding, inter alia, the discharges of Ramirez, Lewis, and Morales, she dissented as to the findings regarding the arbitration agreement and Nguyen’s related statements.  Disagreeing with the majority’s assessment, Member McFerran argued that Board precedent holding an employer violates the Act by imposing a new rule in response to Section 7 activity, even if the rule is otherwise lawful, should apply and govern the outcome in the instant case.  McFerran argued that under such precedent, it is irrelevant to the analysis whether the rule restricts Section 7 rights or not. Under McFerran’s analysis, the distribution of Cordúa’s new arbitration agreement was therefore unlawful.

McFerran also argued that Nguyen’s statements to employees regarding the agreement constituted unlawful threats, regardless of whether the revised agreement was lawful.  To McFerran, a “reasonable employee would have understood this conversation as a threat” of removal or discharge “for raising concerns about” and opposing the terms and conditions of employment related to the agreement.  Because Section 7 protects employees’ rights to question and object to employer policies, and employees would have understood Nguyen’s statements as a threat intended to suppress that activity, McFerran concluded his statements violated the Act.

Takeaways

As we learned in Epic Systems, mandatory arbitration agreements that include class and collective action waivers are lawful under the Act.  However, the Board’s decision in Cordúa Restaurants adds important clarity as to the limits of lawful employer conduct surrounding such agreements.

  • Under Cordúa, employers are permitted to promulgate or revise mandatory arbitration agreements to employees, even if done in response to Section 7 activity, such as the filing of a class or collective action wage claim.
  • Moreover, employers are permitted to condition employment on the signing of such agreements, and may inform employees of the consequences of refusing to sign the agreement.
  • However, employers are prohibited from disciplining or discharging employees for filing, initiating, or taking part in a class or collective action based on terms and conditions of employment—and employers should be aware of prohibitions against retaliating against employees who exercise their statutory rights under the respective wage-and-hour laws.

The Board may have more to say on Epic Systems and mandatory arbitration agreements and class/collective action waivers, and we’ll be sure to update you if it does.

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Photo of Mark Theodore Mark Theodore

Mark Theodore is a partner in the Labor & Employment Law Department. He has devoted his practice almost exclusively to representing management in all aspects of traditional labor law matters throughout the U.S. He is Co-Chair of Proskauer’s Labor-Management and Collective Bargaining Practice…

Mark Theodore is a partner in the Labor & Employment Law Department. He has devoted his practice almost exclusively to representing management in all aspects of traditional labor law matters throughout the U.S. He is Co-Chair of Proskauer’s Labor-Management and Collective Bargaining Practice Group.

Some recent highlights of his career include:

  • Successfully defended client against allegations that it had terminated a union supporter and isolated another. T-Mobile USA, Inc., 365 NLRB No. 15 (2017).
  • Successfully appealed NLRB findings that certain of client’s written policies violated the National Labor Relations Actions Act.  T-Mobile USA, Inc., 363 NLRB No. 171 (2016), enf’d in part, rev’d in part 865 F.3d 265 (5th Cir. 2017).
  • Represented major utility in NLRB proceedings related to organizing of planners.  Secured utility-wide bargaining unit. Bargained on behalf of grocery chain.  After negotiations reached an impasse, guided the company through lawful implementation of five year collective bargaining agreement.
  • Coordinated employer response in numerous strike situations including a work stoppage across 14 western states of the client’s operations.

Mark has extensive experience representing employers in all matters before the NLRB, including representation petitions, jurisdictional disputes and the handling of unfair labor practice charges from the date they are filed through trial and appeal. Mark has acted as lead negotiator for dozens of major companies in a variety of industries, including national, multi-unit, multi-location, multi-employer and multi-union bargaining. Mark has handled lockout and strike situations, coordinating the clients efforts.

In addition, Mark has handled hundreds of arbitrations involving virtually every area of dispute, including contract interest arbitration, contract interpretation, just cause termination/discipline, benefits, pay rates, and hours of work.

Photo of Michael Lebowich Michael Lebowich

Michael J. Lebowich is a partner in the Labor & Employment Law Department and co-head of the Labor-Management Relations Group. He represents and counsels employers on a wide range of labor and employment matters, with a particular interest in the field of traditional…

Michael J. Lebowich is a partner in the Labor & Employment Law Department and co-head of the Labor-Management Relations Group. He represents and counsels employers on a wide range of labor and employment matters, with a particular interest in the field of traditional labor law.

Michael acts as the primary spokesperson in collective bargaining negotiations, regularly handles grievance arbitrations, assists clients in the labor implications of corporate transactions, and counsels clients on union organizing issues, strike preparation and day-to-day contract administration issues. He also has significant experience in representation and unfair labor practice matters before the National Labor Relations Board.

His broad employment law experience includes handling of race, national origin, gender and other discrimination matters in state and federal court. A significant amount of his practice is devoted to counseling clients regarding the application and practical impact of the full range of employment laws that affect our clients, including all local, state and federal employment discrimination statutes, the Fair Labor Standards Act, the Family and Medical Leave Act, and state labor laws.

Michael has substantial experience in a wide variety of industries, including entertainment, broadcasting, newspaper publishing and delivery, utilities and lodging. He represents such clients as The New York Times, BuzzFeed, ABC, the New York City Ballet, PPL, Pacific Gas & Electric, Host Hotels and Resorts, and The Broadway League (and many of its theater owner and producing members).  Michael also has significant public sector experience representing, among others, the City of New York and the Metropolitan Transportation Authority.

Michael is a frequent guest lecturer at Columbia Business School, the Cornell School of Hotel Administration, the New York University Tisch School for Hospitality, Tourism and Sports Management, and is an advisory board member of the Cornell Institute for Hospitality Labor and Employment Relations.

Photo of Steven Porzio Steven Porzio

Steven J. Porzio is a partner in the Labor & Employment Law Department and a member of the Labor-Management Relations Group. Steve assists both unionized and union-free clients with a full range of labor and employee relations matters. He represents employers in contract…

Steven J. Porzio is a partner in the Labor & Employment Law Department and a member of the Labor-Management Relations Group. Steve assists both unionized and union-free clients with a full range of labor and employee relations matters. He represents employers in contract negotiations, arbitrations, and representation and unfair labor practice cases before the National Labor Relations Board.

Steve has experience conducting vulnerability assessments and providing management training in union and litigation avoidance, leave management, wage and hour, and hiring and firing practices. He provides strategic and legal advice in certification and decertification elections, union organizing drives, corporate campaigns, picketing and union contract campaigns. Steve has represented employers in a number of different industries, including higher education, health care, construction and manufacturing in successful efforts against unions in election and corporate campaigns.

In addition to his traditional labor law work, Steve assists companies with handbook and personnel policy drafting and review, daily management of employee disciplines and terminations, and general advice and counsel on compliance with federal and state employment laws.

Steve’s litigation experience includes work on matters before state and federal courts, the Equal Employment Opportunity Commission, the Connecticut Commission on Human Rights and Opportunities, the New York State Division of Human Rights and various other administrative agencies. He has litigated matters involving age, race, national origin, gender and disability discrimination, wage and hour, whistleblower and wrongful termination claims.

While attending the Syracuse University College of Law, Steve served as the editor-in-chief of the Syracuse Science and Technology Law Reporter. He also received the Robert F. Koretz scholarship, awarded in recognition of excellence in the study of labor law.

Photo of Joshua Fox Joshua Fox

Joshua S. Fox is a senior counsel in the Labor & Employment Law Department and a member of the Sports, Labor-Management Relations, Class and Collective Actions and Wage and Hour Groups.

As a member of the Sports Law Group, Josh has represented several…

Joshua S. Fox is a senior counsel in the Labor & Employment Law Department and a member of the Sports, Labor-Management Relations, Class and Collective Actions and Wage and Hour Groups.

As a member of the Sports Law Group, Josh has represented several Major League Baseball Clubs in all aspects of the salary arbitration process, including the Miami Marlins, Boston Red Sox, Los Angeles Dodgers, Kansas City Royals, San Francisco Giants, Tampa Bay Rays and Toronto Blue Jays. In particular, Josh successfully represented the Miami Marlins in their case against All-Star Catcher J.T. Realmuto, which was a significant club victory in salary arbitration. Josh also represents Major League Baseball and its clubs in ongoing litigation brought by current and former minor league players who allege minimum wage and overtime violations. Josh participated on the team that successfully defended Major League Baseball in a wage-and-hour lawsuit brought by a former volunteer for the 2013 All-Star FanFest, who alleged minimum wage violations under federal and state law. The lawsuit was dismissed by the federal district court, and was affirmed by the U.S. Court of Appeals for the Second Circuit.

Josh also has extensive experience representing professional sports leagues and teams in grievance arbitration proceedings, including playing a vital role in all aspects of the grievance challenging the suspension for use of performance-enhancing drugs of then-New York Yankees third baseman Alex Rodriguez. Josh also has counseled NHL Clubs and served on the trial teams for grievances alleging violations of the collective bargaining agreement, including cases involving use of performance-enhancing substances, domestic violence issues, and supplementary discipline for on-ice conduct. He has played a key role in representing professional sports leagues in all aspects of their collective bargaining negotiations with players and officials, including the Major League Baseball, National Hockey League, the National Football League, Major League Soccer, the Professional Referee Organization, and the National Basketball Association,.

In addition, Josh has extensive experience representing clients in the performing arts industry, including the New York City Ballet, New York City Opera, Big Apple Circus, among many others, in collective bargaining negotiations with performers and musicians, the administration of their collective bargaining agreements, and in grievance arbitrations.

Josh also represents a diverse range of clients, including real estate developers and contractors, pipe line contractors, hospitals, hotels, manufacturers and public employers, in collective bargaining, counseling on general employment matters and proceedings before the National Labor Relations Board, New York State Public Employment Relations Board and arbitrators.

Josh has also recently served as an adjunct professor at Cornell University’s School of Industrial Labor Relations for the past two years, teaching a course regarding Major League Baseball salary arbitration.

Prior to joining Proskauer, Josh worked for a year and a half at the National Hockey League, where he was involved in all labor and employment matters, including preparations for collective bargaining, grievance arbitration, contract drafting and reviewing and employment counseling. Josh also interned in the labor relations department of Major League Baseball and at Region 2 of the National Labor Relations Board. He was a member of the Brooklyn Law Review and the Appellate Moot Court Honor Society and served as president of the Brooklyn Entertainment and Sports Law Society.