Seventh Circuit Declares Class Action Waivers Unenforceable, Creates Circuit Split


By:  Tim Holdsworth

Last week, the U.S. Court of Appeals for the Seventh Circuit bucked the appellate trend and held that arbitration agreements containing class and collective action waivers violate the National Labor Relations Act and are unenforceable under the Federal Arbitration Act. Every other circuit court to consider this question, including the Fifth, Second, Eighth, Ninth, and Eleventh Circuits, has held otherwise.

In Lewis v. Epic Sys. Corp., a health care software company required some employees to agree to waive their right to participate in a class or collective action for wage and hour claims. Instead, the employees had to bring these claims through individual arbitration. An employee subject to this agreement later sued the company in federal court for overtime violations under the Fair Labor Standards Act in a collective action. The company moved to dismiss the claim and compel individual arbitration. The district court denied the company’s motion, and the company appealed.

On appeal, the company argued that the arbitration agreements are enforceable because the Federal Arbitration Act creates a preference for arbitration, and that this preference overrides any rejection of the agreements by the National Labor Relations Act. Rejecting the other circuit courts and the U.S. Supreme Court’s approval of such waivers in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the Seventh Circuit held that there was no conflict between the FAA and the NLRA.

This newly-created split among circuits could lead to a Supreme Court review. However, at the moment, class action waivers appear to be unenforceable in the states of Illinois, Indiana, and Wisconsin (states within the Seventh Circuit). Given this result, employers operating in these states should re-examine their arbitration agreements.