Dive Brief:
- Employers using forced arbitration agreements to try and stem the use of class action lawsuits by employees may have to consider an alternative soon, as a federal appeals court late last week ruled that employers cannot force employees to sign away their right to band together for legal action.
- According to the New York Times, the decision, from the United States Court of Appeals for the Seventh Circuit in Chicago, handed U.S. workers a major victory and, at the same time, could mean the issue will be taken up by the U.S. Supreme Court.
- In the case, Jacob Lewis v. Epic Systems Corp., the appeals court held that forcing arbitration and banning collective actions violates the National Labor Relations Act. The decision also conflicts with Fifth Circuit’s earlier decision in D.R. Horton, creating a circuit split, according to the On Labor blog. And that could drive the case to the Supreme Court.
Dive Insight:
"It would be hard to overstate the importance of this decision for the evolving law of mandatory arbitration agreements," wrote Benjamin Sachs, a professor of labor law at Harvard Law School, at the On Labor blog.
He says without a Supreme Court intervention, the decision questions the legality of "all mandatory employment arbitration agreements" in the seventh circuit (Illinois, Indiana, and Wisconsin) that contain class action waivers. He adds that other circuit courts could follow suit.
In Times article, Sachs is quoted as saying that arbitration agreements and banning class actions over the past decade have been basically supported by courts. But this could signal a major change, at least in cases where illegal arbitration clauses are used (Epic Systems had that type of clause, according to the court).
For employers, it looks like it may be time to rethink using those clauses. According to an earlier Times article on the issue of fairness, arbitration agreements are not working for aggrieved employees or consumers (arbitration clauses are used by companies in customer contracts as well).
