Decision on class-action waiver cases has Epic stakes

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The U.S. Supreme Court will kick of its new term in October with oral arguments in a trio of cases that promise to settle questions over whether employees can be forced to sign away their right to band together to sue their employers.

Experts say the justices’ decision in the cases, whose petitions for review were all filed within two weeks of each other, will have sweeping effects on employment law. Above all, the court will be deciding whether certain prohibitions on class-action law suits come into conflict with cornerstones of employment law.

Citing the high court’s previous decisions upholding arbitration and class-action clauses in consumer contracts, many observers are predicting the justices will once again side with employers. A decision of that sort would help immunize many companies from expensive litigation. Employees who had signed agreements banning class-action suits would be left to fend for themselves in challenges concerning everything from work conditions to wage violations.

Of the three cases before the court, one originates in Wisconsin. Jacob Lewis, once a technical writer for the medical-software company Verona-based Epic Systems Inc., sued his former employer after alleging that it had shorted him on his wages.

Epic, in seeking to get the case dismissed and force the dispute into arbitration, responded by pointing to a document that Lewis other employees were asked to sign in early 2014. Although later added to the paperwork that all new hires are expected to complete, the document was sent to Lewis by email.

By either clicking an “I agree” button or simply continuing to work at Epic, Lewis and other employees ostensibly gave up their right to band together to take any wage-rated disputes to court. If they became disgruntled, they were to pursue a resolution one-by-one in arbitration proceedings, said one of Lewis’ lawyers, Caitlin Madden of Hawks Quindel in Madison.

The U.S. Supreme Court has now been asked to decide whether such agreements are legally enforceable. If successful, Lewis and 28 other employees will be able to go forward with their lawsuit in the Western District. If not, they have to enter into individual arbitration with Epic.

Mandatory pre-dispute arbitration agreements, which employees sign as a condition of employment and require employees to settle disputes in individual arbitration, have been around for some time. It has been only in recent years, though, that employers have added provisions banning employees from banding together to sue the employer in court, said Paul Secunda, a law professor at Marquette University and an expert in employment law.

The flaw in these waivers, Lewis contended, is that Section 7 of the National Labor Relations Act prohibits employers from preventing employees from engaging in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

“One way that employees can act together to protect themselves in the workplace or improve working conditions in the workplace is to file a lawsuit together,” said Secunda.

But there is another law to consider. The Federal Arbitration Act, enacted in 1925, was originally intended merely to put pre-dispute arbitration agreements on the same footing as other sorts of commercial contracts. Lately, though, it has come to be interpreted by courts as governing all types of contracts.

In trying to find a way out of this thicket, the U.S. Supreme Court is essentially being asked to decide which of these two acts is controlling in disputes concerning arbitration agreements.

Lewis and his lawyers have contended that it’s the NLRA that should prevail and have managed to get District Court Judge Barbara Crabb to agree with them. The Seventh Circuit Court of Appeals affirmed that decision last May, making it one of the first federal appeals courts to find the clauses invalid.

Epic, which petitioned the U.S. Supreme Court last September to review that decision, not surprisingly contends that it’s the FAA that is controlling. To back its arguments, it is pointing to the court’s recent decisions concerning consumer-law contracts.

A decision siding with Epic would not only be a blow to employees. It would also mean that employment practitioners would have to spend more time preparing to go to arbitration, Madden said.

“Practitioners will have to familiarize themselves more with arbitration if the Supreme Court upholds these arbitration agreements and be prepared to advise workers or employers about how that mechanism for resolving disputes function,” Madden said. “I don’t think these cases will go away. They’ll just be somewhere else.”

Breanne Snapp of Habush Habush & Rottier, who is also one of Lewis’ lawyers, said a decision upholding the waivers could also mean that wage-and-hour class-actions lawsuits will become less common. She said that many employment claims are simply not big enough on their own to be worth going to arbitration or court for. That, in turn, could diminish the incentive employers now have to comply with wage and hour laws.

“Class actions are an important counter balance for an individual worker or individual consumer against the power of a corporation, and that will decrease if these agreements are upheld,” Snapp said. “I think something a lot of people don’t know is that Brown v. Board of Education was a class action case. It wasn’t an individual case. … Class actions have an important role in enforcing discrimination laws and employment discrimination laws.”

Most employment and constitutional-law professors think it likely that the Supreme Court will side with Epic and other employers and find that these sort of arbitration agreements are enforceable.

David Schwartz, a University of Wisconsin law professor who teaches constitutional law and studies the FAA, said the writing is on the wall given the court’s previous decisions. The relevant precedents set in part by justices now sitting on court have all implicitly accepted the broad reading of the FAA that Epic is arguing for.

“The respondents are likely to lose because for three decades now, the U.S. Supreme Court has stretched every possible point to make sure the arbitration agreements get enforced in every case,” he said. “They’ve accepted the weaker argument, made flimsy excuses. They can certainly do it here.”

In arguing that the court has been mistaken in its take on arbitration jurisprudence, Schwartz in part cites modern contract-law principles that invalidate contract terms that can be determined to be patently unreasonable. Scrutiny of that type becomes especially intense for adhesion contracts – contracts that someone has essentially no choice but to sign.

“You can’t expect someone to give meaningful consent to a term that seems unimportant at the time of signing,” Schwartz said. “In fact, in every setting other than arbitration, courts have refused to enforce that type of clause.”

Secunda said that anything is possible but his best guess is that the Supreme Court will hand down a pro-arbitration, anti-labor decision.

“There’s definitely an anti-litigation orientation on this court,” he said. “They do seek, in many previous consumer-arbitration decisions, to give precedence to arbitration agreements.”

Both Schwartz and Secunda noted that even the justices who are more liberal have not always been pro-consumer or pro-worker in arbitration cases.

The two professors predict dark days for employees. Both said class-action suits allow plaintiffs who would not have a claim worth bringing to court on its own to still get their day in court and attempt to hold employers accountable. That’s particularly true in employment law, where class actions bring in better attorneys and help ensure cases are litigated at a higher level, Secunda said.

“What we find in employment law is there’s a lot of disputes that if brought by the individual are just not worth bringing,” he said. “They might be worth $100, be worth $1,000. It costs more than that to hire an attorney. So, a lot of these claims don’t get brought.”

“It’s going to be a disaster for workers,” Schwartz added. “At that point, it’s going to be open season to violate wage and hour laws.” Follow @erikastrebel