Federal Appeals Court Sides with NLRB – Holds Arbitration Agreement and Class Action Waiver Violates Employee Rights and Unenforceable

[caption id="attachment_1437" align="alignright" width="98"] Steven M. Swirsky[/caption]

The US Court of Appeals for the Seventh Circuit in Chicago has now sided with the National Labor Relations Board (NLRB or Board) in its decision in Lewis v. Epic Systems Corporation, and found that an employer’s arbitration agreement that it required all of its workers to sign, requiring them to bring any wage and hour claims that they have against the company in individual arbitrations “violates the National Labor Relations Act (NLRA) and is unenforceable under the Federal Arbitration Act FAA).”

In writing for a three judge panel in Lewis v. Epic Systems, Chief Judge Wood found that the views of the NLRB, expressed in its decision in Murphy Oil, D.R. Horton, and other decisions finding employers’ attempts to require their employees to arbitrate any and all wage and hour and similar claims individually and not in class action lawsuits, were entitled to deference, under the Chevron doctrine.  He held that the NLRB’s view that mandatory arbitration interferes with employees’ rights under Section 7 of the NLRA, was, at a minimum, “a sensible way to understand the statutory language” of Section 7 of the Act and, for that reason, “we must follow it.”

Judge Wood agreed with the Board that the right to pursue claims on a class or collective basis is a substantive right, “not merely a procedural one,” as Epic Systems contended.  It was, he concluded, “the core substantive right protected by the NLRA” and the “foundation on which the (NLRA) and Federal labor law rest.”

While the Seventh Circuit sided with the Board, other federal appeals courts that have considered the question of whether the Act prohibits employers from requiring their employees who are not represented by a union or covered by a collective bargaining agreement to arbitrate their claims individually have reached an opposite conclusion.  These include Courts for the Second, Fifth, Eighth, and Ninth Circuits.  These courts have concluded that the Federal Arbitration Act (“FAA”) with its mandate to support arbitration, dictated the finding that an employer could require individual arbitration of employment disputes, and that such restrictions impacted procedural, not substantive rights.  Further, in a case fully briefed and currently pending oral argument before the Second Circuit, the argument has been squarely presented whether issue is resolved by the second part of Section 7 of the NLRA, which grants to employees the right to refrain from engaging in any and all “concerted protected activities,” along with the right to engage in such activities.  This Section 7 language, employers argue, blesses an employee’s right to give up the right to litigate employment claims (including wage and hour claims) in class actions and to resolve all such issues in single, individual arbitration proceedings.

The decision of the Seventh Circuit, finding that the Board’s view was not inconsistent with the FAA, sets the ground for continued uncertainty as employers wrestle with the issue.  Clearly, the question is one that is likely to remain open until such time as the Supreme Court agrees to consider the divergent views, or the Board, assuming a new majority appointed by a different President, reevaluates its own position.