News & Events

In a 3 to 1 decision, the National Labor Relations Board (NLRB) has affirmed the right of employers to require its employees to sign mandatory arbitration agreements prohibiting employees from opting into a collective action in a Fair Labor Standards Act claim for overtime pay. It went even further to grant employers the right to terminate any employee who fails to or refuses to sign such a mandatory arbitration agreement.

In the decision of Cordúa Restaurants, Inc. and Steven Ramirez and Rogelio Morales and Shearone Lewis (August 2019), the employer-friendly board reversed a decision by the administrative law judge who found the employer violated the rights of certain employees who refused to sign mandatory arbitration agreements. In this particular case, the employer required its employees to sign mandatory arbitration agreements which waived the employee’s “right to file, participate or proceed in class or collective actions (including a Fair Labor Standards Act collective action in any civil court or arbitration proceeding).” After a number of employees opted in (joined) a collective action filed against the employer filed by another group of employees seeking damages for violations of the Fair Labor Standards Act, the employer then revised its arbitration agreement to include a prohibition against employees opting in or joining these types of collective actions. Several of the employees refused to sign the mandatory arbitration agreement with the new language and those employees were discharged.

In 2018, the U.S. Supreme Court issued its decision in an Epic Systems Corp. v. Lewis holding that arbitration agreements which contain class and collective action waivers and which further required employment disputes to be resolved by individual arbitration did not violate the National Labor Relations Act. Relying upon the Supreme Court’s decision in Epic Systems, the NLRB reasoned that the “promulgation of such an agreement, even in response to Section 7 activity,…does not violate the Act.” Despite a vigorous dissent by Member McFerran, the Board felt that requiring employees to execute a mandatory arbitration agreement waiving any right to even opt into a collective action did not “chill” the rights of employees from engaging in permitted activity under the NLRA. Moreover, the NLRB reasoned Epic Systems specifically permitted an employer to condition continued employment on employees signing such agreements and thus threatening employees with discharge for refusal to sign was not unlawful.

With the growing number of claims under the Fair Labor Standards Act for unpaid overtime and the prevalence of collective actions, this decision by the Labor Board will be welcomed by many employers and will be certain to cause employers to consider the need for mandatory arbitration agreements. While the decision of the Labor Board may be appealed to the Circuit Court, it is far from certain that the decision will be overturned.

Employers faced with overtime issues should consider the impact of Cordúa Restaurants, Inc. and consult with their professionals about the need for mandatory arbitration agreements.