Class action waiver (think D.R. Horton) is illegal says 7th Circuit

Lewis v. Epic Systems (7th Cir 05/26/2016) will go down in history because the court ruled that a class action waiver is illegal and an arbitration clause containing a class action waiver cannot be enforced. This creates a clear-cut split between federal circuit courts, and makes this case eminently ripe for review by the US Supreme Court. Epic Systems, a health care software company, required certain groups of employees to agree to bring any wage-and-hour claims against the company only through individual arbitration. The agreement did not permit collective arbitration or collective action in any other forum. When Jacob Lewis brought a class action suit claiming violations of the FLSA and state law, Epic Systems moved to compel arbitration. The district court refused. Epic Systems appealed – and lost.

Remarkably, the 7th Circuit found that agreements with individual employees barring access to class or collective remedies violate the National Labor Relations Act – even without considering what the NLRB has done in such cases. Because they violate federal law, they are illegal and unenforceable.

Alternatively, the 7th Circuit took note that the NLRB has found similar clauses to be NLRA violations in cases such as D.R. Horton, and indicated the need for the court to defer to the NLRB's interpretation.

As for the Federal Arbitration Act, the 7th Circuit noted that the contract Lewis signed says that if the collective-action waiver is unenforceable, then any collective claim must proceed in court, not arbitration. Not only that, the court said there really is no conflict between the Federal Arbitration Act and the National Labor Relations Act.

Three other circuits have reached opposite conclusions. They have refused to follow the NLRB's famous D.R. Horton case, which holds that class action waiver agreements deprive employees of the Section 7 rights guaranteed by the National Labor Relations Act.

Next stop: US Supreme Court.