7th Circuit Finds Class Action Waivers Unenforcable

By: Maital Savin, Associate

On 5/26/16, in Lewis v. Epic Systems Corp., 15-cv-02997, the Seventh Circuit held that class action waivers in arbitration agreements are unenforceable, creating a circuit split.

In Lewis v. Epic, the arbitration agreement at issue provided that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.” A group of employees filed a proposed collective action in federal court, alleging that Epic violated wage and hours laws by misclassifying them as exempt employees. Epic sought to dismiss the case on the ground that the collective action was precluded by the class action waiver in the arbitration agreement. The District Court for the Western District of Wisconsin held that the class action waiver impedes on employees’ Section 7 right to engage in “protected concerted activity” under the National Labor Relations Act (NLRA) and refused to enforce the waiver. The Seventh Circuit affirmed the district court’s decision.

This is significant because the Seventh Circuit’s decision in Lewis departs from the Fifth Circuit’s position that class action waivers are enforceable. This circuit split makes the issue ripe for appeal to the United States Supreme Court. If the Supreme Court affirms the Seventh Circuit’s decision (or comes to a 4-4 decision), the Seventh Circuit’s decision will become the law across the nation.

In light of this new decision, employers in the Seventh Circuit (including Illinois, Indiana and Wisconsin) should carefully review their arbitration agreements to ensure that they are enforceable and consider removing any provisions limiting class actions. Employers should also pay close attention to any provisions which provide that an unenforceable waiver invalidates the entire agreement and consider including a savings clause.

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