In May 2016 the US Court of Appeals for the Seventh Circuit issued a decision that sided with the National Labour Relations Board. In Lewis v Epic Systems Corporation the court held that class and collection action waivers were invalid and contrary to substantive rights to act collectively as guaranteed by the National Labour Relations Act.(1)

The court suggested that collective action rights could conceivably be waived in a collective bargaining agreement with a union. However, the agreement in Lewis was part of a programme that applied only to individuals. The Seventh Circuit's decision splits from other circuit courts – notably the Fifth Circuit – and positions the issue for possible resolution by the US Supreme Court. While the arbitration and waiver provisions in Lewis applied to wage and hour claims (eg, overtime claims), the decision has broader scope and will apply to waivers of other employment-related class and collective claims (eg, discrimination claims).

Importantly, the agreement in Lewis specified that if the class waiver was found to be invalid, any such class claims could be heard only in court and not in arbitration. The district and appeals courts respected this provision and declined to compel arbitration of the claims. Without a 'failsafe' provision, the invalidation of a class or collective action waiver can result in class or collective claims being compelled to arbitration. This can be problematic due to the limited bases for appeals of arbitration awards.

Until the Supreme Court or Congress provides further clarity, class and collective action waivers will retain their utility – particularly outside the Seventh Circuit. While the principal remedy for an invalid waiver appears to be unenforceability, liability exposure could be greater if an individual is terminated or not hired for refusing to sign an agreement containing an invalid class waiver.

Employers may wish to review their arbitration agreements – and other dispute resolution agreements – to determine whether these agreements contain class or collective action waivers and, if so, determine the appropriate next steps.

For further information on this topic please contact Brian J Gold or Jonathan D Lotsoff at Sidley Austin LLP's Chicago office by telephone (+1 312 853 7000) or email (bgold@sidley.com or jlotsoff@sidley.com). Alternatively contact Jennifer B Zargarof at Sidley Austin's Los Angeles office by telephone (+1 213 896 6000) or email (jzargarof@sidley.com). The Sidley Austin website can be accessed at www.sidley.com.

Endnotes

(1) Lewis v Epic Systems Corporation (No 15-2997) can be accessed here.