The Seventh Circuit sided with the National Labor Relations Board (NLRB), creating a split with the Fifth Circuit, in holding an employer's arbitration agreement was unenforceable. (Lewis v. Epic Systems Corp. (7th Cir., May 26, 2016) No. 15-2997.)
The employer, a software company, violated the National Labor Relations Act (NLRA) by imposing a mandatory arbitration agreement barring employees from seeking class, collective, or representative remedies to wage-and-hour disputes. The employer required certain employees to sign as a condition of employment. A technical writer who signed the agreement filed a putative class action arguing the employer had misclassified the technical writers as exempt from overtime. The employer moved to compel arbitration. The district court denied the motion.
The Seventh Circuit found "concerted activity" could include resort to class action remedies. The court then determined the arbitration agreement impinged employee's rights to engage in concerted activity. The employer argued the Federal Arbitration Act (FAA) trumped the NLRA and entitled it to enforce its class-action waiver. The Seventh Circuit disagreed, stating the employer's argument "put the cart before the horse." The first question was not whether the FAA "trumped" the NLRA, but whether the two statutes were in conflict at all. The FAA contains a saving clause that does not require a court to enforce agreements "upon such grounds as exist by law." Thus, the Seventh Circuit determined it was not required to enforce an illegal arbitration agreement that violated the NLRA.
The decision also questioned a Ninth Circuit opinion, which held a class-action waiver may be enforceable where the employee had the right to opt out without penalty. According to the Seventh Circuit, the Ninth Circuit's decision failed to defer to previous Board decisions reaching the opposite conclusion.