CLIENT UPDATE

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June 7, 2016

Seventh Circuit Ruling Holds Arbitration Agreement with Mandatory Class Action Waiver Violates the National Labor Relations Act

On May 26, 2016, in Lewis v. Epic Systems Corporation, 2016 WL 3029464 (7th Cir. 2016), the United States Court of Appeals for the Seventh Circuit sided with the National Labor Relations Board (“NLRB”) and affirmed the district court’s denial of a motion to compel arbitration, finding that an employer’s mandatory arbitration agreement that required all of its workers to bring any wage and hour claims that they had against the company in individual arbitrations “violates the National Labor Relations Act (‘NLRA’) and is unenforceable under the Federal Arbitration Act (‘FAA’).”

The Court found the right to pursue claims on a class or collective basis is a “core substantial right protected by the NLRA” and not “merely a procedural [right].” The Court noted that the NLRB has consistently found “employer-imposed, individual agreements that purport to restrict Section 7 rights” to be unenforceable. Thus, the NLRB’s view that mandatory arbitration interferes with employees’ rights under Section 7 of the NLRA, was “a sensible way to understand the statutory language” of the NLRA. The Court therefore concluded that the NLRB finding was entitled to deference.

Takeaway for Employers

This decision contradicts the positions of the United States Court of Appeals for the Second, Fifth, Eighth and Ninth Circuits, which have all held that mandatory arbitration agreements only impact procedural, not substantive rights. These circuits have found that the NLRA does not prohibit employers from requiring their employees to arbitrate claims individually when those employees are not represented by a union or covered by a collective bargaining agreement. The existence of the FAA, they have found, dictated that an employer could require individual arbitration of employment disputes. This circuit split will continue until the United States Supreme Court rules definitively on this subject.

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If you have any questions regarding the Seventh Circuit’s decision, please do not hesitate to contact us.