The 7th Circuit recently disagreed with other federal courts of appeals and sided with the National Labor Relations Board (NLRB) by holding that class-waiver provisions in arbitration agreements violate the National Labor Relations Act (NLRA). The ruling creates a circuit split that can only be resolved by the U.S. Supreme Court.
Whether arbitration agreements with class-waiver provisions violate the NLRA has been sharply disputed. The NLRB has consistently held that such limitations on an employee’s ability to file a class or collective action violate the NLRA, even in the face of federal judicial decisions holding otherwise. The majority of other circuit courts that have addressed the issue have rejected the NLRA’s reasoning. See e.g., Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013, 1018 (5th Cir. 2015); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1052–54 (8th Cir. 2013).
The 7th Circuit’s decision in Lewis v. Epic Systems Corporation is a departure from the approach taken by other federal circuit courts. No. 15-2997 (7th Cir. May 26, 2016). In Lewis, the 7th Circuit based its decision on Section 7 of the NLRA, which protects the rights of employees to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .” 29 U.S.C. § 157. The court held that Section 7 protects the rights of employees to engage in class, representative, and collective legal proceedings because Congress was aware of those procedures when it enacted the NLRA and because “[t]he plain language of Section 7 encompasses them . . . .” Since the arbitration agreement did not permit employees to utilize class or collective procedures, the court concluded that the agreement violated the NLRA and was not enforceable under the Federal Arbitration Act.
Takeaway: The 7th Circuit’s decision in Lewis provides support for the NLRB’s continued efforts to challenge class-waiver arbitration agreements, and it creates a circuit split regarding the enforceability of those agreements.