Of all the federal circuit courts, I was not expecting the 7th Circuit to venture out on a limb to support the NLRB’s interpretation of the National Labor Relations Act (NLRA) as precluding class arbitration waivers. After all, the 7th Circuit gets affirmed more than other circuit courts by SCOTUS, earning it a reputation for being fairly conservative. Yet, contrary to the five other circuits that have already disagreed with the NLRB interpretation, the 7th Circuit just became the first to step out in support of the Board’s precedent.
In Lewis v. Epic Systems Corp., 2016 WL 3029464 (7th Cir. May 26, 2016), the arbitration agreement between the employer and its employees called for individual arbitration of disputes and waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.” Nevertheless, a technical writer (of all the unlikely heroes…) sued the employer in federal court asserting violations of labor laws. When the employer moved to compel individual arbitration, the employee responded that the arbitration agreement violated the NLRA. The district court agreed with the employee, and the 7th Circuit affirmed.
Knowing that it was creating a circuit split, the unanimous panel supported its result with as much precedent and analysis as it could muster. The opinion’s logic is this: Section 7 of the NLRA gives employees the right “to engage in other concerted activities,” and filing class actions constitutes “other concerted activities,” by virtue of federal precedent as well as the statute’s legislative history. Furthermore, the Board’s interpretation of the NLRA is entitled to deference. Therefore, the Court held, because the employer forced its employees to agree to a contract that stipulated away the employees’ right to class and collective action, it was unenforceable.
The panel then addressed whether the FAA “overrides” the interpretation of the labor laws. Finding that the two statutes were not in conflict, the panel rejected any notion that the FAA altered the result. In particular, the opinion notes that on the whole, the NLRA is very pro-arbitration and therefore does not conflict with the federal policy favoring arbitration. It then attempts to deal with the pro-class-action-waiver language in Concepcion and Italian Colors by pointing out that: 1) it was dicta, dicta, dicta; and 2) the savings clause in Section Two recognizes that arbitration agreements may be made invalid by other laws.
Would this panel have been so bold if there were not an equally divided 8 justices on the Supreme Court? I don’t know. But, I do know that if this decision (and the NLRB precedent) wins the day, and if the recent CFPB proposed regulations are issued and upheld, it will represent a fundamental shift in the use and value of arbitration agreements for large companies that contract with hundreds (or thousands or millions) of employees and consumers at once.
Post script: The 7th Circuit did not persuade the 8th Circuit to change its mind on this issue. Just a week after the Lewis decision, the 8th Circuit decided Cellular Sales of Missouri v. NLRB, 2016 WL 3093363 (8th Cir. June 2, 2016), in which it reaffirmed its 2013 ruling that the NLRB was simply wrong in concluding that class-action waivers violate the labor laws. However, the 8th Circuit did affirm the Board’s finding that the company violated the NLRA by drafting an arbitration agreement that would lead a reasonable employee to believe it waived or limited their rights to file unfair labor practice charges with the NLRB.