NLRB: Employers Can Revamp Arbitration Agreements in Response to Collective or Class Action Suits

The Supreme Court held last year in Epic Systems v. Lewis that mandatory arbitration agreements requiring employees to arbitrate claims against their employer on an individual—rather than on a class or collective—basis are valid and enforceable and do not violate the National Labor Relations Act (NLRA). Earlier this month, the National Labor Relations Board (NLRB) expanded on this decision. It held that employers may lawfully revamp their mandatory arbitration agreements to restrict workers from participating in wage and hour class or collective actions under either the Fair Labor Standards Act (FLSA) or state laws. The Board further held that employers can inform employees that failure to agree will result in termination.

This recent case arose in the context of a complaint alleging that Cordua Restaurants Inc. violated the NLRA by firing workers for participating in a hybrid collective action. 

At issue was Cordua’s response to a class and collective action suit in the U.S. District Court for the Southern District of Texas in January 2015, alleging violations of the FLSA and Texas Minimum Wage Act. At the time, the company had an arbitration agreement that barred workers from filing or participating in a class or collective action. Seven employees filed the action against Cordua, and initially 13 others opted in. Cordua moved to compel arbitration under the existing agreements. Nine months after the suit was filed, the employer required all its employees to sign an updated arbitration agreement that prohibited them from both filing collective actions and opting into collective action suits—a revision that the Board found simply made an already implied requirement explicit. 

The Board reasoned that although the NLRA prohibits employers from terminating or disciplining employees for filing a class or collective action or engaging in any conduct qualifying as “protected concerted activity,” enforcement of agreements by employees to arbitrate their disputes individually instead of opting into a collective action is lawful under Epic Systems. Any other finding, the Board said, “would be inconsistent with the Supreme Court’s holding in Epic Systems that individual arbitration agreements do not violate the act and must be enforced according to their terms.” Furthermore, the Board held that inasmuch as Epic Systems permits an employer to condition employment on employees entering into an arbitration agreement that contains a class or collective action waiver, conditioning continued employment on signing revamped arbitration agreements was lawful.

This decision allows employers to expand and revise arbitration agreements even after litigation has been filed. This is a significant tool to restrict employees from opting into class action suits.

Ballard Spahr’s Labor and Employment Group monitors changes in the law and policy at the NLRB and routinely helps clients to remain compliant to NLRB decisions. Ballard Spahr’s Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements. It is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.