Dive Brief:

• Union Square Hospitality Group has rescinded a recently introduced mandatory arbitration agreement that would prevent employees from filing class action lawsuits against the company, Eater reports. Sexual harassment claims were excluded.
• USHG employees were required to sign the contract or lose their jobs, Eater reports. When rumors arose that employees at its Gramercy Tavern restaurant were planning to protest the policy on Tuesday, USHG president Chip Wade announced in an email on Monday that the restaurant company would remove the arbitration section of its new employee manuals, according to Eater. 
• "Many of our people have shared questions and concerns about a new arbitration agreement," a USHG spokesperson told Restaurant Dive via email. "USHG is built on listening to our team members, and because of that we have decided to rescind the agreement. Over the next several months, we will invite all interested team members to join in a collaborative process to create a best in class, inclusive program for conflict resolution."

Dive Insight:

This is not the first labor-related bump that USHG has hit in recent years, despite its reputation for trying to achieve a fair relationship with its workers. In 2015, the company adopted a no-tipping policy that ruffled several feathers, leading some servers to file a suit alleging that they were paid less as a result of the policy shift. It also suffered criticism for the way it handled several years of sexual misconduct complaints at some of its restaurant locations, and Gramercy Tavern was sued last year for reportedly making an employee wear a male uniform even though the individual identified as gender nonspecific.

USHG may have been emboldened by a recent Supreme Court ruling finding that restaurant workers can be bound by arbitration agreements that exclude their right to join or file a class action lawsuit. Given the recent spate of employee-related issues that it endured, the arbitration agreement could have been an appealing way to streamline legal challenges while reducing its exposure in class action lawsuits. Arbitration agreements are typically thought to favor the employer.

But in the wake of the Me Too movement and given increasing dialogue around equity in the workplace, efforts by employers to silence employees could tarnish their brand halos. California has taken a strong stance against arbitration agreements, with Governor Gavin Newsom signing a bill in October 2019 that outlawed mandatory arbitration. He also extended the amount of time that employees have to file workplace civil rights complaints under state law.

USHG isn't alone in confronting employee disputes. In January 2019, Chipotle was facing 10,000 complaints of wage theft and won a ruling from the presiding federal court judge that 2,800 of those workers had signed enforceable arbitration agreements preventing them from bringing their claim in court.

Arbitration agreements may provide employers with some protection from employee lawsuits, but they still face prosecution from state and federal authorities. Last month, Chipotle was slapped with a $1.37 million restitution judgment to settle claims by Massachusetts' Office of the Attorney General alleging that it violated the state's child labor laws. In August 2019, Qdoba paid over $400,00 for child labor citations at 22 locations. Wendy's settled with the state for $400,000 in February related to similar violations at 46 corporate-owned locations. 

It's unclear what USHG's new system for "conflict resolution" will be, but it may be a smart move long-term to drop mandatory arbitration agreements given then negative optics, which are inconsistent with how the company brands itself.