On May 26, 2016, the Seventh Circuit issued its decision in Lewis v. Epic Systems Corporation, Case No. 15-2997, holding that an arbitration agreement providing “that covered claims will be arbitrated only on an individual basis” and that employees “waive the right to participate in or receive money or any other relief from any class, collective, or representative proceeding” impinges on employees’ Section 7 rights. The Seventh Circuit’s decision creates a split with the Fifth Circuit, which has repeatedly held that class and collective action waivers in arbitration agreements do not violate the National Labor Relations Act.
Since its decision in D.R. Horton in 2012, the Board has held that class and collective action waivers violate Section 8(a)(1) because the Act protects the right of employees to improve their working conditions through administrative and judicial forums. According to the Board, an “individual who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7 … central to the [NLRA’s] purposes.” As such, in the Board’s opinion, by requiring employees to refrain from collective or class claims, waivers of those claims infringe the substantive rights protected by Section 7.
The Fifth Circuit reversed the Board’s decision in D.R. Horton, holding that an employer commits no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing arbitration agreements. Just this past fall, the Fifth Circuit again reversed a Board decision finding that an employer committed an unfair labor practice by requiring employees to waive collective and class claims in Murphy Oil USA, Inc. v. NLRB.
The Seventh Circuit, however, held that the employer’s agreement “runs straight into the teeth of Section 7,” and “[c]ontracts that stipulate away employees’ Section 7 rights or otherwise require actions unlawful under the NLRA are unenforceable.” In rejecting the employer’s argument that the Federal Arbitration Act trumps the NLRA (and thus disagreeing with the Fifth Circuit), the Seventh Circuit found that:
there is no conflict between the NLRA and the FAA, let alone an irreconcilable one. As a general matter, there is “no doubt that illegal promises will not be enforced in cases controlled by the federal law.”… The FAA incorporates that principle through its savings clause; it confirms that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” … Illegality is one of those grounds. … The NLRA prohibits the enforcement of contract provisions like Epic’s, which strip away employees’ rights to engage in “concerted activities.” Because the provision at issue is unlawful under Section 7 of the NLRA, it is illegal, and meets the criteria of the FAA’s savings clause for nonenforcement. Here, the NLRA and FAA work hand in glove.
Recognizing that the decision would create a conflict in the circuits, the Seventh Circuit panel circulated its opinion to all active judges, but “[n]o judge wished to hear the case en banc.”
Petition for certiorari to the Supreme Court is all but certain. Given the current makeup of the Court, resolution of the circuit split will likely hang in the balance of the individual ultimately sworn in as the ninth justice.