Seventh Circuit: Class and Collections Waivers Violate NLRA
Court of Appeals upholds an NLRB decision holding that class and collection action waivers in arbitration agreements are unlawful and unenforceable.
This article was published in the May 26, 2016, issue of the National Law Review.
The teeter-totter battle between the National Labor Relations Board (NLRB) and employers regarding the legality of class and collective action waivers in arbitration agreements continues. Joining the fray this week is the Seventh Circuit, issuing a decision in Jacob Lewis v. Epic Systems Corporation agreeing with the NLRB that such waivers violate both the National Labor Relations Act (NLRA) and the Federal Arbitration Act (FAA).
At issue in Epic Systems Corp., was a provision in an arbitration agreement the Madison-based software company sent to its employees via e-mail on April 2, 2014. The provision at issue in the agreement entitled “Waiver of Class and Collective Claims” provided that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.” The agreement saved the employees time from executing and returning the agreements, stating that employees were “deemed to have accepted the [a]greement” if they “continue[d] to work at Epic.” Not deterred by this waiver, Jacob Lewis, a former Epic Systems technical writer, and other technical writers brought a collective action lawsuit alleging their employer violated the Fair Labor Standards Act (FLSA) by misclassifying them as exempt employees. The company sought to dismiss on the grounds that the collective action was precluded by the arbitration agreement, however, Mr. Lewis and his co-workers’ defiance was rewarded when the District Court refused to enforce the waiver and the Seventh Circuit most recently affirmed.
The significance of the decision is that the Seventh Circuit is the first Circuit Court to stand in direct contrast to the well-documented position taken for several years by the Fifth Circuit. The primary battleground for the back-and-forth between the NLRB and employers on this issue until this week had been the Fifth Circuit. In 2012, the Board issued its D.R. Horton, Inc. decision explaining that “from its earliest days” the Board has held that “employer-imposed, individual agreements that purport to restrict Section 7 rights” violate the NLRA. The company appealed that decision to the Fifth Circuit in 2013 which overturned the NLRB. Rather than appeal the decision to the Supreme Court, the NLRB decided to double down on its position in Murphy Oil USA, Inc., again determining that a class and collective action waiver violated the NLRA. Employers have the option to appeal an NLRB decision with the D.C. Circuit or any circuit in which it has sufficient business options. As a result, the Murphy Oil wisely appealed the decision to the NLRB which again overturned the NLRB decision explaining to the board, that we’ve “been here, done that.”
Here is where it gets interesting (if it isn’t interesting enough for you already) – rather than risk appealing to the Supreme Court and receiving a split 4-4 affirmance of the Murphy Oil decision, the NLRB asked for a rehearing by the Fifth Circuit en banc. The Fifth Circuit recently denied this request. The NLRB was therefore faced with deciding whether to finally appeal the D.R. Horton and Murphy Oil decisions up to the Supreme Court, or continue its cat-and-mouse game with employers with sufficient contacts in Fifth Circuit states.
The Seventh Circuit decision now opens the door for the NLRB to potentially sit back and allow Epic Systems to appeal the decision to the Supreme Court. The significance of this is that while politicians continue to politick and the nation continues to have a Supreme Court operating at less than full capacity, split 4-4 decisions have the same weight as an affirmance. As a result, while the impact of the Seventh Circuit decision may be felt by Epic Systems Corporation today, the greater resulting impact of the decision should soon be felt by all as the decision may have ushered the NLRB and an employer one step closer toward an epic showdown before the Supreme Court on the issue of class and collective action waivers.
 A case heard before all the judges of a court.
 For you baseball fans, this is the equivalent of the “tie-goes-to-the-runner” with the NLRB being the runner; for you soccer fans, this would mean the NLRB would have the equivalent advantage of an away goal; and for basketball and football fans, this is the equivalent of winning the head-to-head regular-season matchup for determining home-court advantage for the playoffs.