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Seventh Circuit rules against health-care software company in case over arbitration agreement

By Jessica Karmasek | Jun 6, 2016

CHICAGO (Legal Newsline) - A federal appeals court recently ruled that employers can’t prevent class, or collective, actions through waivers in mandatory arbitration agreements.

The U.S. Court of Appeals for the Seventh Circuit, in its May 26 opinion, ruled against Epic Systems, a Wisconsin-based health-care software company.

Epic required certain groups of employees to agree to bring any wage-and-hour claims against the company only through individual arbitration. The agreement did not permit collective arbitration or collective action in any other forum.

A three-judge panel, including Chief Judge Diane Wood, Circuit Judge Ilana Rovner and John Robert Blakey, a judge on the U.S. District Court for the Northern District of Illinois, sitting by designation, concluded the agreement violates the National Labor Relations Act, or NLRA, and is unenforceable under the Federal Arbitration Act, or FAA.

The Seventh Circuit, in affirming the U.S. District Court for the Western District of Wisconsin’s denial of Epic’s motion to compel arbitration, became the first federal appeals court to say employers can’t prevent such actions through waivers.

“Congress was aware of class, representative, and collective legal proceedings when it enacted the NLRA. The plain language of Section 7 encompasses them, and there is no evidence that Congress intended them to be excluded,” Wood wrote in the 22-page opinion. “Section 7’s plain language controls and protects collective legal processes.

“Along with Section 8, it renders unenforceable any contract provision purporting to waive employees’ access to such remedies.”

Section 7 of the NLRA gives employees the right to engage in “concerted activity.” Section 8 of the act defines what constitutes unfair labor practices by employers, by labor unions, and by employers and labor unions together.

The Seventh Circuit, which ruled Epic’s arbitration provision impinged on Section 7 rights, also declined to rule that the FAA trumped the NLRA in this case.

“Epic argues that the FAA overrides the labor law doctrines we have been discussing and entitles it to enforce its arbitration clause in full. Looking at the arbitration agreement, it is not clear to us that the FAA has anything to do with this case,” Wood wrote for the court. “The contract imposes two rules: (1) no collective action, and (2) proceed in arbitration. But it does not stop there. It also states that if the collective-action waiver is unenforceable, then any collective claim must proceed in court, not arbitration.”

Epic argued the appeals court should ignore the contract’s saving clause.

“In essence, Epic says that even if the NLRA killed off the collective-action waiver, the FAA resuscitates it, and along with it, the rest of the arbitration apparatus,” Wood wrote. “We reject this reading of the two laws.”

The Seventh Circuit, in its opinion, noted that it is “aware that the circuits have some differences of opinion in this area,” but said those differences do not affect its analysis.

The Fifth Circuit, in 2013 and 2015, upheld class, or collective, action waivers. Not to mention that the Second, Eighth and Ninth circuits, in various rulings in recent years, have declined to out-right bar such waivers.

“Epic warns us against creating a circuit split, noting that at least two circuits agree with the Fifth,” Wood wrote for the Seventh Circuit panel. “Of these courts, however, none has engaged substantively with the relevant arguments.”

In April 2014, Epic Systems sent an email to some of its employees. The email contained an arbitration agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that the employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.”

The agreement included a clause stating that if the “Waiver of Class and Collective Claims” was unenforceable, “any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction.”

It also said employees were “deemed to have accepted this Agreement” if they “continue[d] to work at Epic.”

Epic gave employees no option to decline if they wanted to keep their jobs.

The email requested that recipients review the agreement and acknowledge their agreement by clicking two buttons.

A day after the email was sent, Jacob Lewis, then a technical writer at Epic, followed those instructions for registering his agreement.

Later, however, Lewis had a dispute with Epic, and he did not proceed under the arbitration clause. Instead, he sued Epic in federal court, arguing the company had violated the Fair Labor Standards Act, or FLSA, and Wisconsin law by misclassifying him and his fellow technical writers and thereby unlawfully depriving them of overtime pay.

Epic moved to dismiss Lewis’ claim and compel individual arbitration.

Lewis responded that the arbitration clause violated the NLRA because it interfered with employees’ right to engage in concerted activities for mutual aid and protection and was therefore unenforceable.

The Western District of Wisconsin agreed and denied Epic’s motion.

Epic could not immediately be reached for comment on the Seventh Circuit’s ruling.

From Legal Newsline: Reach Jessica Karmasek by email at

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