To Waive or Not To Waive: Circuits Split on Allowing Class Action Waivers in Arbitration Agreements

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To Waive or Not To Waive: Circuits Split on Allowing Class Action Waivers in Arbitration Agreements

By: Jacquelyn Larson

Can an employer and an employee agree to an arbitration agreement which prohibits class actions? Until recently, the answer appeared to be yes. Unfortunately, the Seventh Circuit recently broke ranks with every other federal court that has reviewed the issue, holding that employers and employees may not make such an agreement. The Seventh Circuit’s decision to go rogue has created a circuit split which will almost certainly cause the Supreme Court to take up the issue. Hopefully the Supreme Court will then decide the issue once and for all.

The National Labor Relations Board (“NLRB”) laid the groundwork for the Seventh Circuit’s decision, holding in 2012 that mandatory arbitration agreements which restrict employees’ ability to pursue workplace grievances through class litigation violate the National Labor Relations Act (“NLRA”) in D.R. Horton, 357 NLRB 2277.

Before the Seventh Circuit’s May 26, 2016 decision in Lewis v. Epic, no federal court to review this issue has sided with the NLRB.

The Fifth Circuit, on immediate review of D.R. Horton, rejected the NLRB’s analysis. The Fifth Circuit held that the NLRA does not contain a “congressional command overriding” the Federal Arbitration Act (“FAA”); and that the “use of class action procedures … is not a substantive right” under Section 7 of the NLRA. In 2013, the Eighth Circuit came to a similar conclusion. Even the liberally minded Ninth Circuit held in 2014 that, absent a finding of coercion, there is no unlawful restraint on Section 7 activity merely by giving a choice to the employee to individually settle disputes in arbitration rather than in court.

In Lewis, despite noting the other circuit court decisions, the Seventh Circuit sided with the NLRB, finding that the right to a class action is a protected concerted activity under Section 7 and that arbitration agreements with class action waivers are unenforceable. The Seventh Circuit found no conflict with the FAA.

The NLRB will continue to follow its holding in D.R. Horton, despite the Fifth, Ninth, and Eighth Circuit’s holdings, since Administrative Law Judges must follow NLRB precedent rather than contrary circuit court authority, at least until the Supreme Court rules otherwise. Therefore in a way, the Seventh Circuit’s holding may be a boon to employers, in that it creates a sharp circuit split which should demand the attention of the Supreme Court, and may lead to an overruling of the NLRB’s decision in D.R. Horton


An arbitration agreement which restricts class actions will currently be deemed an unfair labor practice and rejected by the NLRB; such an agreement may however be restored on appeal, depending on the circuit court. The time is ripe for Supreme Court review to determine once and for all that the NLRA’s protection of “concerted activity” does not cover arbitration agreements waiving class action litigation. Contact the Saqui Law Group if you have any questions when drafting employee agreements.


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