The United States Court of Appeals for the Seventh Circuit has held that an arbitration agreement that waives an employee’s right to bring a class or collective action in any judicial forum as a condition of employment violates the National Labor Relations Act (NLRA) and is not saved by the Federal Arbitration Act (FAA).
In Lewis v. Epic Systems Corp., No. 15-2997, Epic Systems Corporation (Epic) distributed an arbitration agreement (the Agreement) via email that required, among other things, that: (1) any wage and hour dispute must be submitted to arbitration rather than pursued in court; and (2) employees must pursue claims only on an individual basis, and not on any available class, collective, or representative basis. The Agreement also provided that employees were “deemed to have accepted [the Agreement]” if they continued to work for Epic. The plaintiff accepted the terms of the Agreement.
Despite agreeing to arbitrate his disputes with Epic, the plaintiff sued Epic in federal court for violations of the Fair Labor Standards Act. Epic moved to compel individual arbitration in accordance with the Agreement. Plaintiff opposed the motion and argued that the Agreement violated Section 7 of the NLRA because it interfered with his right to engage in concerted activities. The district court denied Epic’s motion and the Seventh Circuit affirmed.
The Court held that contracts which force employees to renounce the ability to file or participate in class or collective actions are unenforceable because these actions constitute concerted activity under Section 7. And, since the Court found the arbitration agreement violated Section 7, the agreement was unlawful and therefore could not be saved by the FAA.
Despite the United States Supreme Court’s decisions in Concepcion (2011) and Italian Colors (2013), which permitted class action waivers in arbitration agreements, the Lewis Court limits the right of employees who are covered by the NLRA to enter into such agreements. Arguably, since supervisory employees are not protected by the NLRA, Lewis would not apply to arbitration agreements entered into by supervisors.
In any event, Lewis creates a circuit split on the issue of whether employees covered by the NLRA can enter into arbitration agreements containing class action waivers. While the Second, Fifth, Eighth and Ninth Circuits have unequivocally held that they can, the Seventh Circuit has now declared that they cannot. Employers now must be keenly aware of where such class action waivers are enforceable. Given the split among circuits, it is anticipated that this issue will reach the United States Supreme Court.