Court Strikes Down Class Action Arbitration Waivers

June 1, 2016 by Christopher Hammer

The Seventh Circuit Court of Appeals on May 26 issued a watershed decision banning mandatory employment arbitration agreements that bar employees from bringing class-action claims.  (Lewis v. Epic Systems Corp.)  The court’s decision aligns it with the National Labor Relations Board which issued a similar ruling in 2012.  (D.R. Horton, Inc.)  The court emphatically concurred that it violates the National Labor Relations Act to require employees to agree to a class-action waiver in an employment arbitration agreement.  Other federal appeals courts have disagreed with the NLRB, and this is the first federal appeals court decision to agree with the NLRB’s analysis.  The Ninth Circuit Court of Appeals, which has jurisdiction in California and the western states, heard the same issue back in November and is scheduled to issue its opinion soon.

Relying on Section 7 of the NLRA, which establishes an employee’s right “to engage in … concerted activities for the purpose of … mutual aid or protection,” the Seventh Circuit concluded that bringing a class action to enforce employment rights constitutes activity protected by Section 7, and that prohibiting collective action through an arbitration agreement violates the NLRA.

Class-action waivers bar an employee from bringing claims, such as overtime or minimum wage claims, on behalf of other employees.  These waivers are used by employers to discourage employees from enforcing their rights by making it economically impractical to bring class claims.  Up until now, the courts have enforced such waivers.  The Seventh Circuit’s decision bucks that trend.  It is anticipated that the Ninth Circuit will follow suit.  If the federal appeals courts continue to disagree on the enforceability of these waivers, the U.S. Supreme Court can be expected to step in to resolve the conflict.

 

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