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.