Court Finds That Company Violated National Labor Relations Act by Requiring Employees to Sign Individual Arbitration Agreements

On January 17, 2014, Administrative Law Judge Lisa D. Thompson issued her decision in the case of Keith Cunningham, (Charging Party), and Leslie’s Poolmart, Inc., (Respondent). In his Complaint, Mr. Cunningham alleges that the Respondent violated Section 8(a)(1) of the National Labor Relations Act (NLRA) by requiring that all employees enter into an arbitration agreement. The NLRA grants all American workers a broad right to act collectively vis-à-vis their employers. By entering into this agreement the Respondent’s employees did not explicitly waive their right to pursue class, collective, or representative actions; that is, the arbitration agreement “does not expressly prohibit employees from engaging in protected concerted activities.” Still, the Court found that the company intentionally used the agreement to force employees to arbitrate all claims against the employer individually, and that this requirement amounts to denying employees their right under the NLRA to pursue actions collectively.

In short, then, the Court found that the company’s arbitration agreement was unlawful, although not expressly prohibiting employees from engaging in protected collective activity, because it nevertheless has the intended effect of making employees unable to engage in such activity. What was the basis of the Court’s determination that the Respondent’s policy of requiring employees to sign the agreement was unlawful? The answer to this question lies not in the agreement itself, but how the company had sought to use it.

In February of 2013, Cunningham, on behalf of himself and others similarly situated, commenced a wage-and-hour legal case in the Supreme Court of Los Angeles County against his employer, Leslie’s Poolmart, Inc. In their complaint the plaintiffs alleged that their employer had incorrectly and unlawfully calculated and paid overtime to them since 2009. The company’s response to the filing of this lawsuit was to file a Motion to Compel Arbitration, which would have required Mr. Cunningham to arbitrate his claims against the company individually, along with a corresponding Motion to Dismiss his class/collective action.

Thus, the General Counsel alleged, and the Court ultimately agreed, that, while the arbitration agreement does not contain any provision in which the employee waives their right to classwide or collective action, when the Respondent tried to use the agreement to force Cunningham to arbitrate his claims individually, “its very actions in enforcing the agreement has the effect of leading employees to reasonably believe they cannot engage in concerted activity protected by Section 7 of the Act.” Thus, the Judge concludes that “even though the agreement is silent regarding the filing of collective actions, Respondent violated Section 8(a)(1) of the Act because, by its own contentions and actions, it essentially mandates that employees waive, as a condition of employment, their right to file class, collective, or representative claims in any arbitral or judicial forum.”

For reference, here are the relevant section of the NLRA:
RIGHTS OF EMPLOYEES Sec. 7. [§ 157.] Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all of such activities except to the extent that such right may be affected by an agreement requiring membership in a labor organization as a condition of employment as authorized in section 8(a)(3) [section 158(a)(3) of this title].
UNFAIR LABOR PRACTICES Sec. 8. [§ 158.] (a) [Unfair labor practices by employer] It shall be an unfair labor practice for an employer–
(1) to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7 [section 157 of this title]

Perhaps many will be surprised to learn that that the activity protected by the NLRA includes much more than organization and collective bargaining. It also includes employees’ right to pursue legal action collectively, and this is why the NLRA is often the basis of legal challenges to companies’ use of arbitration agreements.

If you believe your rights under the National Labor Relations Act have been violated by a prospective employer, please contact The Harman Firm, LLP