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Class action ruling muddies arbitration agreements

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An appeals court ruling upholding the use of class action waivers in arbitration agreements is creating confusion for employers because it conflicts with other appeals courts on the issue.

Observers say they anticipate the waiver issue, the focus of a May 26 ruling by the 7th U.S. Circuit Court of Appeals in Chicago in Jacob Lewis v. Epic Systems Corp., will be appealed to the U.S. Supreme Court, though it is not clear whether the nation's high court will agree to hear this case or a related one (see story, page 23).

Experts say the 2nd, 5th and 9th Circuits have issued rulings contrary to the 7th Circuit's, and the 8th Circuit did so again just days after Epic.

Though not a party in the case, Epic does reflect the National Labor Relations Board position that mandatory arbitration agreements are unenforceable under the National Labor Relations Act, observers say.

The NLRB does not comply with court decisions contrary to its interpretation of the law under its “nonacquiescence” doctrine, but it would have to fall in line with a U.S. Supreme Court ruling, experts say.

Epic creates a situation where national employers cannot require their workers to sign waivers in the 7th Circuit, which covers Illinois, Indiana and Wisconsin, but can do so in circuits that have ruled in the waivers' favor or not ruled at all on the subject.

The 7th Circuit was the first federal appeals court to essentially say the NLRB was correct in its analysis, said Bennet D. Alsher, a partner at Ford & Harrison L.L.P. in Atlanta.

“This is a huge issue,” Mr. Alsher said. Many employers draft arbitration agreements that waive the right to bring class actions “because they prevent these kinds of catastrophic class actions from being filed.”

“There are many cases percolating” on this issue before the NLRB and appeals courts, Mr. Alsher said.

As matters stand, the ruling means there is a different law in the 7th Circuit than elsewhere, said Andrew Volin, a member of law firm Sherman & Howard L.L.C. in Denver. This “makes it much more difficult for national companies to have uniform employment policies” and will create confusion.

“It's going to make it more problematic for employers that want to continue to maintain these programs. It puts a cloud on them,” said Steven M. Swirsky, a member of Epstein Becker & Green P.C. in New York.

All this makes it likely the Supreme Court will consider the issue, experts say.

“We've known for some time the Supreme Court is going to have to rule on this issue at some point, and this case just reinforces that conclusion,” said Ron Chapman Jr., a shareholder at Ogletree, Deakins, Nash, Smoak & Stewart P.C. in Dallas.

“We've already had the dichotomy of the NLRB taking one position and the Court of Appeals uniformly rejecting it, so that the dichotomy was going to have to be resolved by the Supreme Court. Now, we have the additional factor of a circuit split, which reinforces the chance for the Supreme Court to clarify the issue,” Mr. Chapman said.

Several observers are optimistic the Supreme Court would rule in favor of permitting the waivers.

There are plenty of reasons to believe the court will say, “We're going to apply our well-settled principals upholding the value and importance of arbitration,” said Howard M. Bloom, a principal at Jackson Lewis P.C. in Boston.

At the same time, the court's makeup of eight justices creates “even more uncertainty,” he said.

In its 2011 ruling in AT&T Mobility L.L.C. v. Vincent and Liza Concepcion, the high court said an arbitration agreement may contain a class action waiver.

And in 2013, the court held in American Express Co. et al. v. Italian Colors Restaurant that federal arbitration law does not permit courts to invalidate contractual waivers of class arbitration.

Experts say another significant ruling on the issue was the ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in D.R. Horton Inc. v. National Labor Relations Board, which overturned an NLRB ruling that held the Fort Worth, Texas-based home builder's arbitration agreement violated the NLRA.