Jacob Lewis v. Epic Systems Corporation
26 Wage & Hour Cas.2d (BNA) 795, 206 L.R.R.M. (BNA) 3293, 823 F.3d 1147 (2016)
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Rule of Law:
An employment agreement requiring individual arbitration and waiving an employee's right to participate in any class, collective, or representative proceeding violates the National Labor Relations Act (NLRA) and is unenforceable under the Federal Arbitration Act's (FAA) saving clause.
Facts:
- Epic Systems, a health care software company, sent an email to its employees, including Jacob Lewis, containing a new arbitration agreement.
- The agreement mandated that all wage-and-hour claims must be resolved through individual arbitration.
- The agreement explicitly required employees to waive their right to participate in or receive any relief from any class, collective, or representative proceeding.
- The agreement stipulated that continued employment would be considered acceptance of its terms, providing no option for employees to opt-out and keep their jobs.
- Jacob Lewis, an employee, acknowledged and registered his agreement as instructed in the email.
- Subsequently, a dispute arose where Lewis contended that Epic had misclassified him and fellow technical writers, unlawfully depriving them of overtime pay.
Procedural Posture:
- Jacob Lewis filed a collective action lawsuit against Epic Systems in U.S. District Court, alleging violations of the Fair Labor Standards Act (FLSA) and state law.
- Epic Systems filed a motion to dismiss the lawsuit and compel individual arbitration, citing the agreement Lewis had accepted.
- Lewis opposed the motion, arguing the arbitration agreement's collective-action waiver was unenforceable because it violated the NLRA.
- The district court (the trial court) agreed with Lewis and denied Epic's motion to compel arbitration.
- Epic Systems, as the appellant, appealed the district court's denial to the U.S. Court of Appeals for the Seventh Circuit. Jacob Lewis was the appellee.
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Issue:
Does an employment agreement that requires employees to bring wage-and-hour claims only through individual arbitration and explicitly waives their right to participate in any class or collective action violate the National Labor Relations Act (NLRA), and is it consequently unenforceable under the Federal Arbitration Act (FAA)?
Opinions:
Majority - Wood, Chief Judge
Yes, the agreement violates the National Labor Relations Act and is unenforceable. Section 7 of the NLRA guarantees employees the right to engage in 'concerted activities' for 'mutual aid or protection,' which has long been interpreted to include filing collective or class action lawsuits. By forcing employees to waive this right as a condition of employment, Epic's agreement interferes with a core, substantive right protected by the NLRA, constituting an unfair labor practice under Section 8. While the Federal Arbitration Act (FAA) generally mandates the enforcement of arbitration agreements, its 'saving clause' (9 U.S.C. § 2) exempts agreements that are revocable on any grounds that 'exist at law or in equity for the revocation of any contract.' Because Epic's collective-action waiver is illegal under the NLRA, it falls within this saving clause and is therefore unenforceable. The NLRA and FAA are not in conflict; rather, the FAA's own terms prevent the enforcement of a provision rendered illegal by another federal statute.
Analysis:
This decision created a circuit split by holding that the NLRA's guarantee of 'concerted activities' renders class-action waivers in mandatory arbitration agreements illegal and unenforceable. It directly challenged the growing trend in other circuits, influenced by Supreme Court cases like AT&T Mobility v. Concepcion, that prioritized the FAA's pro-arbitration policy over other statutory schemes. The court's reasoning—that the right to collective action is a non-waivable, substantive right under the NLRA and that its illegality triggers the FAA's own saving clause—provided a powerful counterargument to the expansion of mandatory individual arbitration. This ruling set the stage for Supreme Court review to resolve the deep conflict among federal appellate courts on this critical issue of labor and arbitration law.
