LEGAL
A recent ruling from the Seventh Circuit Court of Appeals tackles two hot-button statutory subjects: the National Labor Relations Act (NLRA) and the Federal Arbitration Act (FAA). Of course, according to the opinion by Chief Judge Diane Wood, the FAA likely shouldn’t have had anything to do with the case.
The case is Lewis v. Epic Systems Corporation, and it marks a major victory for workers’ rights in the Seventh Circuit. The facts of the case begin when on April 2, 2014, Epic Systems, a healthcare software company, emailed an arbitration agreement to some of its employees. The agreement mandated that wage-and-hour claims could only be brought through individual arbitration, and further that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.”
The agreement also included a savings clause that held that if the “Waiver of Class and Collective Claims” was unenforceable, “any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction.” Finally, the agreement was worded as such that “Epic gave employees no option to decline if they wanted to keep their jobs.”
One employee, Jacob Lewis, who assented to the agreement later had an employment dispute with Epic. Instead of proceeding under the arbitration agreement, however, he filed suit in federal court, claiming violations of the FLSA. Epic moved to dismiss, arguing that the arbitration agreement was binding. Lewis responded that the agreement violated the NLRA, in that it interfered with employees’ right thereunder “to engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The district court agreed with Lewis, and Epic appealed.
As summarized above, the court of appeals sided with Lewis, finding that “Sections 7 and 8 of the NLRA render Epic’s arbitration provision unenforceable.” Section 7 guarantees that “[e]mployees shall have the right to … engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8 prohibits “any employer action that ‘interfere[s] with, restrain[s], or coerce[s] employees in the exercise of the rights guaranteed in [Section 7].’ ”
This conclusion was reached about halfway through the entire opinion’s text. What was the rest of the opinion about? A discussion of the relevance of the FAA to the case, which the opinion explicitly states early on that “it is not clear to us that the FAA has anything to do with this case.” Indeed, the remainder of the opinion frames Epic’s argument that the FAA overrides the NLRA as a desperate, last-ditch legal theory that shouldn’t be given any serious consideration.
Epic’s legal theory specifically holds “that the NLRA contains no ‘contrary congressional command’ against arbitration, and that the FAA therefore trumps the NLRA.” The FAA establishes “a liberal federal policy favoring arbitration agreements” – which is present even in federal statutory claim cases – that can only be “overridden by a contrary congressional command.” As such, so argued Epic, the arbitration clause is favored by the FAA over the protections enshrined in the NLRA.
Although the Seventh Circuit’s opinion treats Epic’s argument rather dismissively, this argument was largely mimicked from the Fifth Circuit’s 2013 ruling D.R. Horton, Inc. v. N.L.R.B., which essentially came to the opposite conclusion as the Seventh. In fact, the Epic opinion explicitly calls out the D.R. Horton ruling as relying on faulty logic.
But what about the numerous other circuits that have ruled similarly, if perhaps not as decisively, as the Fifth? According to the Seventh Circuit, its Epic ruling does not create a circuit split (although it almost certainly does) since no other court (besides the Fifth Circuit) “has engaged substantively with the relevant arguments.”
Be that as it may, Epic is almost guaranteed to prompt a Supreme Court review of the matter, which could result in even more inconsistency should the Court be without a ninth member – likely resulting in a 4-to-4 split – if and when it rules on Epic. On the other hand, if the Court regains a ninth justice, and one that is appointed by a Democratic president, prior to Epic’s oral arguments, it’s likely that the Court would side with the Seventh Circuit – thereby dramatically rewriting the entire legal landscape on employment arbitration agreements.
For now, however, employers operating within the Seventh Circuit must comply with Epic and refrain from imposing mandatory arbitration clauses on employees – even if they need not do so virtually anywhere else in the country.
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