Class Action Waivers in Arbitration Agreements Violate NLRA, 7th Circuit Rules
Author: Rena Pirsos, XpertHR Legal Editor
June 1, 2016
The 7th Circuit Court of Appeals has ruled, in Lewis v. Epic-Systems Corp., 2016 U.S. App. LEXIS 9638 (7th Cir. 2016), that a health care software company's arbitration agreement violates the right of employees to engage in protected concerted activity under the National Labor Relations Act (NLRA) by barring them from participating in or pursuing wage-and-hour class action or collective claims. Because the ruling deepens a split among the circuits on this issue, it could lead to an eventual review by the Supreme Court to resolve the inconsistency.
Lewis, a technical writer, entered into an arbitration agreement with his employer, Epic-Systems, waiving his "right to participate in or receive money or any other relief from any class, collective, or representative proceeding." By the terms of the agreement, employees were deemed to have accepted the waiver by continuing to work for Epic-Systems and there was no option to decline if they wanted to keep their jobs.
Lewis sued Epic-Systems in federal district court in Wisconsin on behalf of himself and other technical writers alleging that the employer violated the Fair Labor Standards Act (FLSA) by misclassifying them and depriving them of overtime pay. Epic-Systems filed a motion for the district court to dismiss Lewis's claim and to compel individual arbitration under the agreement, but the motion was denied.
The district court agreed with Lewis's argument that the waiver was unenforceable because it interfered with the right of Lewis and the other writers to engage in protected concerted activities under Section 7 of the NLRA. Epic-Systems appealed to the 7th Circuit, which sided with Lewis. The 7th Circuit concluded that enforcing the agreement would amount to permitting an unfair labor practice under Section 8 of the NLRA because it would "interfere with, restrain, or coerce employees" in the exercise of their NLRA rights.
The 7th Circuit also pointed out that the waiver was unfair because it was not part of a collective bargaining agreement and did not give employees the chance to opt out without a penalty. Further, the illegality of the waiver triggered the applicability of the Federal Arbitration Act's (FAA's) "savings clause," which provides that arbitration agreements are "enforceable, save upon such grounds" under which a contract may be revoked.
"Because the provision at issue is unlawful under Section 7 of the NLRA, it is illegal, and meets the criteria of the FAA's saving clause for nonenforcement" the court said. "Here, the NLRA and FAA work hand in glove" and do not conflict, the court concluded.
With this decision, the 7th Circuit has become the first circuit court to agree with the NLRB's position that mandatory arbitration agreements containing class and collective action waivers violate employees' Section 7 rights. Meanwhile, the Second, Eighth and Fifth Circuits have rejected the NLRB's position. As a result, certain agreements that include class and collective action waivers will not be enforced in Wisconsin, Indiana and Illinois, which are all within the jurisdiction of the 7th Circuit, but they will probably continue to be enforced in the three jurisdictions that have rejected the NLRB's position.