Arbitration Agreement’s Collective-Action Waiver Unenforceable

By Nick Bauer June 29, 2016

Employers cannot require employees to waive their rights to bring collective wage and hour claims through the use of mandatory arbitration agreements, according to the 7th U.S. Circuit Court of Appeals.

Jacob Lewis, a technical writer for health care software company Epic Systems Corp., sued his employer in federal court on behalf of himself and his colleagues, alleging that Epic misclassified its technical writers as exempt from overtime pay under the Fair Labor Standards Act and Wisconsin law, and consequently underpaid them in violation of both laws.

Epic asked the district court to require Lewis to arbitrate his claims in an individual capacity under the Federal Arbitration Act (FAA), relying on an arbitration agreement that required employees to bring any wage and hour claims to arbitration and by which Lewis had expressly waived his right to pursue class, collective or representative actions. Epic had required Lewis to accept the arbitration agreement as a condition of continued employment with the company.

Opposing his employer's request, Lewis argued that the mandatory arbitration agreement's class- and collective-action waiver violated the National Labor Relations Act (NLRA) because it interfered with Epic employees' rights under the NLRA to engage in concerted, group action for their mutual aid or protection, and it therefore could not be enforced under the FAA.

The district court denied Epic's request, and the 7th Circuit affirmed the decision on appeal. The NLRA provides employees with a right to engage in protected concerted activity, including the collective use of judicial and administrative processes; requiring employees to waive that right as a condition of employment violates the NLRA, the 7th Circuit concluded. Epic's argument that the FAA required enforcement of the arbitration agreement notwithstanding any tension with its employees' rights under the NLRA failed because the FAA does not require the enforcement of unlawful agreements, the court reasoned.

An employee arbitration agreement that permitted class or collective arbitration of wage claims would not violate the NLRA, the court explained. The 7th Circuit declined to decide whether the collective-action waiver would violate the NLRA if the arbitration agreement had been optional and not a condition of Lewis' continued employment at Epic. It further noted that its ruling does not affect the viability of mandatory arbitration agreements with workers who do not have collective-action rights under the NLRA, such as managers and supervisors.

Other circuit courts of appeals, including the 2nd, 5th, 8th and 9th circuits, have upheld certain collective-action waivers in employee arbitration agreements, so the 7th Circuit's decision in this case creates a split among the circuit courts to have considered whether such agreements are enforceable under the FAA.

Lewis v. Epic Systems Corp., 7th Cir., No. 15-2997 (May 26, 2016).

Professional Pointer: Mandatory employee arbitration agreements that contain class-, collective- and representative-action waivers may not be enforceable in the 7th Circuit (covering Illinois, Indiana and Wisconsin). While the court's decision does not affect the viability of such agreements in the jurisdictions that have found these waivers enforceable, it does create uncertainty concerning whether and to what extent other courts will follow the 7th Circuit's l​ead and sets the stage for potential Supreme Court review.

Nick Bauer is an attorney with Collazo Florentino & Keil LLP, the Worklaw® Network member firm in New York City.​



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