A Breakthrough Ruling on Employment Arbitration

June 01, 2016

Employment agreementThe Seventh Circuit’s recent opinion in Lewis v. Epic Systems Corp.[1] is one of the most important recent decisions regarding class action waivers and employment arbitration. But the story may still be unfolding.

The Lewis case arose when a company (Epic) tried to implement an arbitration program for workplace disputes. Epic sent employees an email with an arbitration agreement mandating that wage-and-hour claims could only be brought through individual arbitration and that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.” Epic’s form agreement also provided that, if a court ruled that the class action waiver was unenforceable, then any class claims would proceed in court and not in an arbitration. Jacob Lewis (an employee) clicked through to accept the arbitration provision in Epic’s email. Later, Lewis filed a lawsuit alleging that Epic was wrongly classifying him (and a class of his co-workers) as ineligible for overtime, claiming that Epic owed them overtime pay under both federal law and Wisconsin law. When Epic filed a motion to compel arbitration, the trial court denied that motion, finding that Epic’s class action waiver violated the National Labor Relations Act because it interfered with the workers’ ability to engage in concerted activities for their mutual aid and protection. Epic appealed.

In a decision issued on May 26th, the Court of Appeals for the Seventh Circuit sided with the employee, holding that Epic’s class action waiver was unenforceable. The Seventh Circuit held that class actions have long been protected “concerted activities” under Section 7 of the NLRA,[2]  and an employer cannot ask its employees to waive those protections in an arbitration provision. By operation of Epic’s arbitration provision, once the trial court ruled that the class action waiver was unenforceable, then the trial court was required to deny Epic’s motion to compel arbitration. The Seventh Circuit also held that the Federal Arbitration Act[3]  did not save Epic’s otherwise-unenforceable arbitration provision. Lewis’ class claims could proceed in court, the Seventh Circuit ruled.

The Seventh Circuit acknowledged that its decision in Lewis conflicted with a leading decision from another Court of Appeals, from the DR Horton case,[4]  which had permitted a class action waiver as reasonable under the Federal Arbitration Act. This split between the Circuits is ripe for the Supreme Court to resolve, if the Supreme Court chooses to do so.

The Lewis opinion is worth a careful read by anyone who represents employees or practices in class action litigation.

Photo Credit: abeelmoser

[1] Lewis v. Epic Systems Corp., 2016 U.S. App. LEXIS 9638 (7th Cir. May 26, 2016).
[2] 29 U.S.C. § 157.
[3] 9 U.S.C. § 2.
[4] D.R. Horton Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013).

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