Some companies ask their employees to sign arbitration agreements requiring them to arbitrate any disputes about their employment, rather than filing a lawsuit against the employer in a state or federal court. A few years ago, the U.S. Supreme Court held that waivers of class action claims in non-employment settings were enforceable. That led to a big push by employers to add waivers of class or collective actions under the Fair Labor Standards Act and other employment laws to their employee arbitration agreements. Challenges to these employee waivers of class action claims followed. Employers were successful in enforcing these waivers at the Second, Fifth, Ninth and Eleventh Circuit Courts of Appeals, which cover Washington, Oregon, California, Nevada, Arizona, Alaska, Hawaii, Texas, Louisiana, Mississippi, New York, Vermont, Connecticut, Alabama, Georgia and Florida. And then came the Seventh Circuit Court of Appeals’ recent decision in Lewis v. Epic Systems Corporation. The Seventh Circuit agreed with the National Labor Relations Board’s argument that class action waivers violate the National Labor Relations Act and are unenforceable, an argument that the other federal appeal courts had uniformly rejected for various reasons.

Impact of Lewis decision on employers

The Lewis decision has several important ramifications for employers. First, it may lead to situations where your arbitration agreement is challenged by an employee. The Lewis decision creates a split between federal appeal courts that may prompt the U.S. Supreme Court to step in and resolve whether class action waivers are enforceable in the context of employment claims. With its current make-up, it may be some time before the Supreme Court takes the case. The appeal courts’ split—and corresponding likelihood of the Supreme Court eventually taking the case—also creates the potential for the Supreme Court to reverse the view of the other federal appeal courts that class waivers in employment arbitration agreements are enforceable. Put simply, the Seventh Circuit’s recent decision gave just enough ammunition to employees’ attorneys to continue fighting arbitration agreements.

Second, the decision places the Tenth Circuit Court of Appeals – which includes Oklahoma, Colorado, Wyoming, Kansas and Utah – in a tug of war. The Tenth Circuit has not yet ruled on whether class action waivers in employment arbitration agreements are valid. Trial courts in Oklahoma, Colorado and Kansas, however, have held that these waivers are enforceable. As challenges to these waivers continue, the Tenth Circuit is likely to address the issue soon. The Seventh Circuit’s decision will be heavily relied upon by the employees’ attorneys to convince the Tenth Circuit to hold the waivers unenforceable. Such a decision could have drastic consequences for your company.

Third, if you have employees in Wisconsin, Illinois and Indiana with arbitration agreements containing class action waivers, the agreements may not be enforceable because those states are covered by the Seventh Circuit. That creates the potential for situations where an employee from one of those states with an unenforceable class waiver files a class action and sends notice of the class action to other employees in other states who have signed valid class action waivers. In short, it can create a mess if you have a multistate work force.

Next steps for employers

It’s important that you stay updated on the issue of class action waiver enforceability. You may need to take quick action when the Tenth Circuit or the Supreme Court rule on the issue. You should also look at your workforce and your arbitration agreements. With more reason to challenge these agreements, employers need to make sure their agreements will hold up. Analyze your workforce and assess your risk if you currently have or may have employees in multiple states. Finally, have qualified legal counsel review your current pay practices and employee classifications. A class action waiver in an arbitration agreement may be helpful, but it does solve any underlying wage and hour violations; it treats a symptom, but does not provide a remedy.

Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. 5/26/16)