Seventh Circuit Goes It Alone – Upholds NLRB Decision Holding That Class and Collective Action Waivers in Arbitration Agreements Are Unlawful and Unenforceable
The court is the first federal appellate court to accept the NLRB’s position on the issue
The long-running teeter-totter battle between National Labor Relations Board (NLRB or Board) and employers regarding the lawfulness of class and collective action waivers in employment arbitration agreements continues. Joining the fray this week is the U.S. Court of Appeals for the Seventh Circuit, which on May 26 issued the first federal appellate court decision to agree with the NLRB’s position that mandatory employment arbitration agreements that require employees to waive the right to engage in class or collective actions in court violate the National Labor Relations Act (NLRA).
At issue in Jacob Lewis v. Epic Systems Corporation was a provision in an arbitration agreement the Madison, Wisconsin-based software company distributed to its employees via e-mail in 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 did not require employees to sign the agreement; employees were “deemed to have accepted the [a]agreement” if they “continue[d] to work at Epic.” Undeterred by this waiver, Jacob Lewis, a former Epic Systems technical writer, and other technical writers, brought a collective action lawsuit alleging that Epic Systems violated the Fair Labor Standards Act (FALSA) by misclassifying them as exempt employees. The company sought to dismiss on the grounds that Lewis’ collective action was precluded by his (and the other employees’) arbitration agreement. Mr. Lewis and his co-workers’ defiance of the agreement was rewarded when the District Court refused to enforce the waiver. Epic Systems appealed, and in an opinion that diverged from prior decisions out of the Fifth, Eighth, and Ninth Circuits, the Seventh Circuit affirmed.
The significance of the decision is that the Seventh Circuit is the first federal appellate court to approve of the NLRB’s much-maligned (and heretofore uniformly rejected) position on this issue. The Seventh Circuit’s opinion rejected the well-documented position taken for several years by the Fifth Circuit, which has been, at least until now, the primary battleground for the back-and-forth between the NLRB and employers on this issue.
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 the NLRB’s decision to the Fifth Circuit, which in 2013 which overturned the NLRB. Rather than seek U.S. Supreme Court review, the NLRB instead decided to double down on its position, issuing its decision in Murphy Oil USA, Inc., once again determining that class and collective action waivers violate the NLRA.
Under the NLRA’s broad venue provisions, employers have the option to appeal an adverse NLRB decision to the D.C. Circuit, or to any circuit in which it has sufficient business options. As a result, Murphy Oil appealed the NLRB’s decision to – you guessed it – the Fifth Circuit, which again overturned the NLRB, explaining to the Board, that it had “been here, done that.”
Now here is where it gets interesting (as if it isn’t interesting enough for you already). Rather than risk an appeal to the U.S. Supreme Court and receiving a split 4-4 affirmance of the Murphy Oil decision (following Justice Scalia’s passing), the NLRB asked for a rehearing from the Fifth Circuit en banc (that is, a rehearing before all of the judges in the circuit). The Fifth Circuit recently denied this request (on May 12). It therefore appeared that the NLRB was once again on the horns of a dilemma: appeal the Fifth Circuit’s decision in Murphy Oil (and implicitly D.R. Horton) to the Supreme Court, or continue its cat-and-mouse game with employers with sufficient contacts in Fifth Circuit states (Louisiana, Texas, and Mississippi).
The Seventh Circuit’s decision in Epic Systems now opens the door for the NLRB to potentially sit back and allow Epic Systems to be the party to seek Supreme Court review. 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 complement, split 4-4 decisions have the same weight as an affirmance. As a result, although the impact of the Seventh Circuit’s decision may be felt by Epic Systems today, in the bigger picture, the greater resulting impact of the decision may soon be felt by all, as the decision may have moved the NLRB and employers one step closer toward an – pardon the pun – “epic” showdown before the U.S. Supreme Court on the issue of class and collective action waivers in arbitration agreements.
 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. And for the blackjack aficionados, it is the equivalent of a push.