NLRB Holds That Employers May Modify Arbitration Agreements, Threaten Workers to Sign After Commencement of Class Action Lawsuit

As we have previously written, the issue of employment arbitration agreements and their effect on class action matters has been an area of significant evolution over the years. Last week, on August 21, 2019, the National Labor Relations Board (NLRB) provided further guidance in this legal landscape, answering a series of unresolved questions following the U.S. Supreme Court’s 2018 decision upholding the use of arbitration agreements with class action waivers in the employment context. 

Specifically, in its recent opinion, the NLRB concluded that:

• Employers can distribute modified mandatory arbitration agreements in response to employees opting in to a collective action under the Fair Labor Standards Act (FLSA) or state wage-and-hour laws.

• Employers can inform employees that failing or refusing to sign a mandatory arbitration agreement will result in them being fired.

• Employers cannot take adverse action against employees for engaging in concerted activity by filing a class or collective action, consistent with longstanding NLRB precedent.

In the case before the NLRB panel, Cordúa Restaurants, Inc., 368 NLRB No. 43 (2019), a restaurant operator was accused of violating the NLRA when it fired workers for opting to participate in a class action lawsuit that alleged the company violated the FLSA and Texas state law.

Prior to the initiation of this lawsuit, the employer had an arbitration agreement in which employees waived the right to “file, participate or proceed” in a class action lawsuit against the company.

However, nine months after the filing of the lawsuit, Cordua required employees to sign a new arbitration agreement. This one also barred employees from opting into collective actions, unless the company agreed in writing to allow them to do so. In other words, in addition to not being able to initiate or take an active role in a wage and hour lawsuit, employees would now be barred from opting in to collect any potential damages from such a lawsuit. 

The NLRB held that the Supreme Court’s 2018 holding meant that the company could indeed update its arbitration agreement and force employees to sign it even after a collective action had already been filed against the company. In coming to this conclusion, the Board noted that this decision still allows employees to individually arbitrate their claims and thus rejected the argument that such a requirement restricts the exercise of employees’ rights under the NLRA.

In the lone dissent, board member Lauren McFerran wrote that the modified arbitration agreement was unlawful due to the fact that it was amended in response to the pending lawsuit, and was therefore discouraging employees from engaging in conduct protected by the NLRA, i.e., opting into the lawsuit. The dissent also concluded that threatening to fire the worker if he or she did not sign the modified agreement constituted unlawful activity.

Ultimately, this NLRB decision tips the scales in favor of employers, providing them with the power to change the terms of mandatory arbitration agreements barring employees from opting into class actions, even after a collective action has already been filed against the company.

It also gives employers a powerful mechanism to force employees to sign these modified arbitration agreements by threatening to fire them if they refuse.

However, employers should be mindful that despite this opinion, an employee still cannot be fired or disciplined for filing a class action lawsuit or engaging in other concerted action. 

Finally, despite this opinion, employers should consider including such opt-in waivers in their arbitration agreements up front, without waiting for a lawsuit. While the opinion provides a useful procedural tool in litigating claims, ensuring your agreements are comprehensive up front will help employers avoid having to give their existing work force the kind of ultimatum at issue in this recent NLRB decision.