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SCOTUS could weigh in on 7th Circuit’s decision on employment agreement’s arbitration clause

By: Erika Strebel, [email protected]//December 21, 2016//

SCOTUS could weigh in on 7th Circuit’s decision on employment agreement’s arbitration clause

By: Erika Strebel, [email protected]//December 21, 2016//

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 Verona-based Epic requires its employees to sign an agreement that precludes them from suing the company over wage-related claims. (Staff photos by Kevin Harnack)

Verona-based Epic requires its employees to sign an agreement that precludes them from suing the company over wage-related claims. (Staff photos by Kevin Harnack)

Should the medical-technology firm Epic Systems and other companies be able to require that employees sign on to agreements forcing them to take labor disputes to independent arbitrators rather than court?

That question could be taken up next year by the U.S. Supreme Court in a dispute that could have far-reaching ramifications for mandatory arbitration agreements and labor law. If the court does accept the case, the justices will be asked to consider whether Jacob Lewis, a former technical writer at Verona-based Epic Systems Corp., should be legally bound by a document he had to sign to get his job at the company.

The document in question — a type of arbitration agreement — was meant to waive his right to band together with other employees to take his then-employer to court. Should a legal dispute arise, Lewis and his colleagues were to have only one means of recourse: Entering one by one into arbitration proceedings.

David Zoeller (left) of Hawks Quindel and Jason Knutson of Habush Habush & Rottier are arguing that federal labor law invalidates arbitration agreements that prevent employees from suing taking legal disputes against their employers to court. The case may land at the U.S. Supreme Court in 2017.
David Zoeller (left) of Hawks Quindel and Jason Knutson of Habush Habush & Rottier are arguing that federal labor law invalidates arbitration agreements that prevent employees from suing taking legal disputes against their employers to court. The case may land at the U.S. Supreme Court in 2017.

The agreement was quickly invoked when Lewis and other employees tried to file a class-action lawsuit alleging they were owed overtime by Epic Systems. In fighting back, the company and its legal representatives insisted on the validity of contract provisions both precluding class actions and requiring employees to seek resolutions through arbitration.

The case has once again drawn attention to arbitration proceedings. Critics have long alleged that arbitration unfairly favors corporations and large employers over individual plaintiffs.

Although the arbitrators who are appointed in such cases are supposed to be neutral, many critics perceive the proceedings to be nothing more than a means of stacking the deck in favor of employers. Still others question the legality of requiring someone to sign away his right to file class-action suits.

It’s no coincidence that scrutiny of this sort has become increasingly common at a time that has also seen arbitration clauses become a nearly ubiquitous presence in contracts for everything from credit cards to Internet service.

But whatever valid points the critics might be making, the courts have largely found the agreements to be legally sound. Companies, as a result, have become emboldened to add arbitration clauses to an ever-greater number of consumer and employment agreements, largely with the goal of protecting corporate profits from possible legal liabilities.

The current state of the law can largely be traced back to the broad interpretation that the U.S. Supreme Court started giving to the Federal Arbitration Act in the 1990s. That act, put into effect in 1925 to encourage arbitration between commercial parties, simply provides that arbitration clauses “shall be valid, irrevocable, and enforceable.”

Arbitration clauses were also affirmed in cases the U.S. Supreme Court handed down in 2011 and 2013. Yet, despite these precedents, Lewis’ lawyers managed to persuade federal circuit courts to take their client’s side.

The attorneys argue that the issues in Lewis’ suit differ in several ways from those found in the previous, precedent-setting cases. First and foremost, Lewis’ allegations deal with employment law, which was not discussed in any of the Supreme Court cases. Also, those cases had largely concerned the conflicts that arise when both state and federal laws are applied to arbitration agreements. Lewis’ case instead deals only with federal law.

Lewis’ lawyers, Jason Knutson of Habush Habush & Rottier and David Zoeller of Hawks Quindel in Madison, have argued those points in the lower courts. Perhaps their most fundamental contention is that the Federal Arbitration Act should not be read by itself in cases like Lewis’, but rather in conjunction with the National Labor Relations Act. That second act, also known as the NLRA, provides that employees have a right, as a group, to choose either courts or arbitration as a means of bringing a wage claim against an employer.

Support for those arguments comes from the National Labor Relations Board, the agency charged with enforcing the NLRA. The board held in 2012 that employers may not use arbitration agreements to force employees to waive their right to go to court as a class over employment claims.

Generally speaking, courts leave the interpretation of particular laws to the agencies charged with enforcing them. The only exception is for cases in which an agency’s interpretation was clearly erroneous.

Despite these standard practices, three federal appeals courts have essentially chosen to ignore the NLRB’s rulings regarding arbitration agreements. One of the first to do so was the 5th Circuit, which provided almost no explanation when it handed down a decision overturning the NLRB’s holding from 2012, said Marquette law professor Paul Secunda.

Rather than elicit more unanimity, though, Lewis’ case has in fact driven a wedge between federal appeals courts. Judges from different jurisdictions have yet to reach consensus on the question of whether arbitration agreements can violate the NLRA.

The first circuit court to take Lewis’ side was the 7th Circuit, which ruled in May that the NLRB’s interpretation should be given deference. The 9th Circuit followed in August.

Epic’s appeal came the following the month.

Although it’s still unknown if the Supreme Court will step in to resolve the discrepancy, various groups are already coming forward with attempts to sway the justices’ opinions. Within two weeks of Epic’s appeal, two petitions for certiorari had been filed in cases involving the enforceability of arbitration agreements in employment contracts.

In Lewis’ case, eight organizations have filed amicus briefs, including the International Association of Defense Counsel, the National Association of Manufacturers and U.S Chamber of Commerce.

The justices are scheduled to discuss Epic’s petition for certiorari at a conference in January.

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