The NLRB and Now the Seventh Circuit Appellate Court in Chicago, Threaten Arbitration Agreements That Prevent Class Action Lawsuits by Employees

May 2016

James B. Sherman, Esq.

The use of arbitration as a means to resolve disputes that otherwise would proceed in court, has grown exponentially over the past decade. Besides the cost savings over litigation (at least in theory), one of the biggest reasons employers have turned to arbitration is the ability to include “class waivers” in such agreements. A class waiver clause in an arbitration agreement requires the employee to take his or her dispute through arbitration alone, and forego class or collective claims with other employees.  These agreements have withstood challenges in court brought under the Federal Arbitration Act (FAA).  More recently, however, the National Labor Relations Board (NLRB) has decided to get involved. In its 2012 decision in D. R. Horton, the NLRB held that the right of employees to join together for mutual aid and protection – “concerted activities” protected by federal labor law - includes their right to pursue class-action arbitration or lawsuits outside the realm of the National Labor Relations Act (NLRA).  This far-reaching decision was promptly shot down by the U.S. Court of Appeals for the 5^th Circuit, in New Orleans.  However, on May 26, 2016, the 7^th Circuit Court of Appeals in Chicago, adopted the NLRB’s position in upholding its decision in Epic Systems Corp. In doing so, the 7^th Circuit gave broad deference to the NLRB’s opinion even though the Board was essentially straying far afield from labor matters.  For example, the decision would ban class waivers of everything from wage and hour to discrimination and harassment claims.

Now that a split exists on the issue between the 5^th and 7^th Circuits, a showdown in the Supreme Court seems likely. Management will no doubt support the 5^th Circuit’s position that the NLRB has exceed its authority under the NLRA. Of course unions, employees and perhaps most fervently, class-action plaintiff lawyers, will advocate strongly in favor of the recent decision of the 7^th Circuit. Both sides face uncertainty, given the vacancy left in the Supreme Court by the death of Justice Antonin Scalia and the political maneuvering over his replacement.  In the meantime, employers in Wisconsin, Illinois and Indiana are stuck with the 7^th Circuit’s decision upholding the NLRB’s position that class waiver clauses in arbitration agreements, violate federal labor law and therefore, are unlawful.