It is not uncommon for an employment contract to include various terms that dictate how disputes between an employer and an employee should be resolved. Many employment agreements contain arbitration clauses that force workers to settle most types of disputes outside of court in front of a neutral arbitrator. The contract may also dictate which state’s law governs any disputes and which court will have the power to hear any lawsuit.
Employers include these terms to make it easier on themselves in case they are ever sued. By controlling the circumstances where a lawsuit can be brought, employers shield themselves from unpredictable results in a courtroom in case of a lawsuit.
Recently, an employer went too far when trying to control its employees options for litigation. In a case called Lewis v. Epic Systems Corp., software company Epic Systems was accused of failing to pay overtime wages by one of their technical writers. The writer alleged that Epic Systems had misclassified him and other employees in an attempt to avoid paying overtime. He attempted to file a class action lawsuit against the company that would join together similarly misclassified workers into one case.
In response to the lawsuit, Epic Systems moved to dismiss the class action case. Previously, Epic Systems had sent a company-wide email forcing employees to sign a new employment agreement. That agreement mandated that all claims had to be brought through arbitration, and also contained a clause that waived the employees’ rights to file a class action lawsuit.
The writer argued that the waiver clause violated the National Labor Relations Act. The National Labor Relations Board (NLRB), a federal agency which is tasked with enforcing the act and safeguarding employees’ right to organize into unions, has consistently argued that class action waivers should be illegal under the law. According to the NLRB, employment contracts which prohibit employees from accessing class or collective remedies interfere with that employee’s right to engage in concerted activities with other co-workers.
The NLRB has not received much support for its position from courts around the country. Previously, the U.S. Supreme Court struck down a California Supreme Court decision which held that class action waivers were unconscionable and unenforceable. Additionally, federal appellate courts in the Fifth, Second, Eight, Ninth, and Eleventh Circuits have also upheld class action waivers in certain types of contracts.
In the Lewis case, the U.S. Court of Appeals for the Seventh Circuit went against the grain in finding that a class action waiver in an employment agreement was unenforceable. The Seventh Circuit agreed with the reasoning used by the NLRB, and allowed the technical writer maintain a class action lawsuit against Epic Systems.
Because the Seventh Circuit’s decision conflicts with so many other appellate court decisions, it is likely that the case will be appealed to the U.S. Supreme Court. Hopefully the U.S. Supreme Court will issue additional guidance regarding class action waivers in employment contracts that will resolve the split between the various federal appellate courts. For now, the lawfulness of class action waivers is in flux. California law allows employees to waive their right to a class action in an arbitration agreement, but there is no clear guidance about whether a waiver in an employment agreement is valid. Employees who have such clauses in their contracts should assume that they will be enforced unless there is a clear decision from the Supreme Court stating otherwise.
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