With a single click, Jason Lewis, a former technical writer at Epic Corp., gave away his right to band together with other employees to take his erstwhile employer to court.
That’s at least what Epic, a maker of medical-equipment software headquartered in Verona, is contending in a case that’s pending in the 7th Circuit Court of Appeals.
According to an agreement Lewis had to sign electronically as a condition of taking a job at Epic, his only recourse should he choose to dispute his employer’s compensation policies was to enter into arbitration. That process — which allows defendants to avoid being hauled into court and instead places legal outcomes in the hands of specially appointed arbitrators — has become the subject of much scrutiny lately, especially as arbitration clauses have become increasingly common fixtures in contracts for everything from credit cards to Internet service.
Although the arbitrators who are appointed in such cases are supposed to be neutral, many critics perceive the process to be nothing more than a means of stacking the deck in favor of employers. Still others decry another common feature of arbitration agreements — prohibitions meant to keep plaintiffs from entering into class-action lawsuits.
Even so, the U.S. Supreme Court and many federal courts, including four of the 13 federal appeals courts, have found arbitration agreements like the one Lewis entered into to be legally valid.
But two Madison attorneys — Jason Knutson and David Zoeller — think they have discovered a few weak spots. If they are successful, a case they have taken up on behalf of Lewis and others like him could lead to a circuit court split that will force the U.S. Supreme Court to weigh in again.
This time, though, they are hoping for a different conclusion.
Arbitration, arbitration — everywhere
The current state of the law, said Paul Secunda, a labor law professor at Marquette University Law School, can largely be traced back to a broader interpretation that the U.S. Supreme Court started giving the Federal Arbitration Act in the 1990s. That act, put into effect in 1925, simply provides that arbitration clauses “shall be valid, irrevocable, and enforceable.”
With the broader interpretation, the Supreme Court has emboldened companies into adding arbitration clauses to an ever-greater number of consumer and employment agreements, the New York Times found in a series of articles published last fall. In most cases, the clauses have succeeded in heading off class-action lawsuits and protecting corporate profits from possible legal liabilities, the Times found.
Knutson, a lawyer at Habush, Habush and Rottier in Madison, said the questions now being raised show there is much more at stake here than legal abstractions.
“There’s a trend right now in which these arbitration agreements are becoming ubiquitous and they have severe consequences for millions of people in the United States. It’s depriving them of a constitutional right,” he said. “It’s alarming how many we’re seeing.”
An Epic lawsuit
Yet, despite perceived injustices, there is the rather large problem of U.S. Supreme Court precedent. In cases decided in 2011 and 2013, the high court endorsed the legal soundness of the class-action bans now commonly found in consumer agreements.
Zoeller, a lawyer at Hawks Quindel, said he thinks Lewis’ case presents a different set of circumstances. For one, he said, it deals with employment law, which was not discussed in the Supreme Court cases. Also, the previous cases had concerned conflicts between state and federal laws governing arbitration agreements. Lewis’ case, in contrast, deals only with federal laws.
Lewis’ legal dispute with Epic dates to February. It was in that month that he joined a federal class-action lawsuit contending that the company had misclassified him as a salaried employee who was not entitled to receive overtime pay.
Epic moved for the court to dismiss the lawsuit, arguing that Lewis was prevented from bringing his case to court by the arbitration agreement he had previously signed. Lawyers representing the company, who could not be reached for comment, contended that the Federal Arbitration Act requires that he bring the dispute by himself before an arbitrator.
At the district-court level, Knutson and Zoeller based their case on three arguments, the most important of which contended that the Federal Arbitration Act was not the only controlling statute. Rather, the lawyers argued, that act must be read in conjunction with the National Labor Relations Act, which provides that employees have a right, as a group, to choose either court or arbitration as a means of bringing a wage claim against an employer.
What’s more, they argued that the Federal Arbitration Act has a saving clause providing that arbitration clauses need not be enforced when there are “such grounds as exist at law or in equity for the revocation of any contract.”
The National Labor Relations Act provides just those sorts of grounds, Zoeller and Knutson argue. In other words, they said, the arbitration agreement that Lewis signed is invalid because it forced them to sign away a right guaranteed by the labor relations act.
That argument won the day for Lewis at district court. Judge Barbara Crabb ruled in his favor in September.
Epic responded with an appeal. The 7th Circuit is scheduled to hear oral arguments in the case on Feb. 12.
“Our ultimate interest is getting resolution for the class of employees in this case who haven’t been paid their wages and getting them that resolution as quick as we can,” Knutson said.
Working against weight of authority
The National Labor Relations Board, the agency charged with enforcing the National Labor Relations Act, held in 2012 in a case named In re Horton, that employers may not use arbitration agreements to force employees to waive their right to go to court as a class over employment claims. That decision was the foundation of Crabb’s ruling in favor of Lewis.
Even so, a handful of federal circuit courts have rejected the labor relations board’s interpretation. One of the first to do so was the 5th Circuit, which overturned Horton on appeal.
“The 5th Circuit has basically said to the NLRB, ‘You’re wrong,’” Secunda said.
The ruling was a bit strange, Secunda said. Generally speaking, he said, circuit courts are supposed to leave the interpretation of particular laws to the agencies that are charged with enforcing them.
Exceptions are made only when an interpretation can be shown to be wrong or clearly erroneous.
This rule of deference does not flow both ways, though.
“The thing that’s interesting is the NLRB is not required to follow the law of any circuits,” said Marquette’s Secunda.
So, no matter how much weight might be carried by the 5th Circuit’s rejection of the labor relations board’s interpretation, “the (issue) will not be decided until the U.S. Supreme Court weighs in,” Secunda said.
Likewise, the 7th Circuit is not bound by other circuit courts, although their decisions may have persuasive value.
“I think what level of deference the board is going to be given at the 7th Circuit is going to be the most interesting aspect of it and how the 7th Circuit views this case in line of recent decisions benefiting arbitration,” Zoeller said.
Making the split
Generally, the highest court in the nation will take up a case if there is split among circuit courts on a particular question. In Lewis’ case, the right conditions for a move up to the Supreme Court would be created if the 7th Circuit were to rule in his favor.
As much as the particular abilities of Knutson and Zoeller, Secunda said, the final result could now depend on the political leanings of the three-judge panel that will decide their case.
“Personally, as a law professor, I completely disagree with the 5th Circuit,” Secunda said. “ … The whole arbitration system for employers is based upon a mismatch in power.”Follow @erikastrebel