Court says workers can’t be forced to sign mandatory arbitration clauses

CHICAGO (PAI) – A top federal appeals court has tossed out a health care software firm’s mandatory arbitration clause that bans workers from invoking the National Labor Relations Act.

The May 26 ruling by the Chicago-based 7^th U.S. Circuit Court of Appeals, in a case involving Epic Systems Corp., a health care software firm in the suburbs of Madison, Wis., is a major win for workers.

That’s because the judges not only upheld workers’ rights to sue as a class under the NLRA for wage-and-hours violations, but also said that the Federal Arbitration Act does not override labor law either.

Corporations increasingly turn to mandatory arbitration clauses within individual workers’ employment contracts, as well as in contracts negotiated with unions. The clauses prevent workers and unions from challenging corporate actions in court. And arbitrations are often stacked against workers, with the firms choosing the arbitrators – and with no appeals.

In the last year or more, the National Labor Relations Board has been tossing out such arbitration clauses, case by case and company by company. But the 7^th Circuit’s ruling goes further. It tosses them out as a general violation of labor law.

Epic’s arbitration clause was both broad and illegal, 7^th Circuit Chief Judge Kemba Wood wrote for the unanimous 3-judge panel. That’s because, among other problems, Epic forced its workers to sign the mandatory arbitration clause as a condition of employment.

Jacob Lewis, a technical writer at Epic, first signed an employment contract there when Epic announced the mandatory arbitration clause and made it a condition for staying on the job, in April 2014. But when he later got into a dispute over pay, he sued under labor law, arguing the arbitration clause breaks the law by preventing him from getting overtime pay.

Epic’s arbitration clause said wage-and-hour claims could be brought only through individual arbitration and that employees waived ‘the right to participate in or receive money or any other relief from any class, collective, or representative proceeding,'” Judge Wood wrote.

Not only did it make signing the clause a condition of working at Epic, but the firm “gave employees no option to decline if they wanted to keep their jobs,” the decision noted.

“We conclude this agreement violates the National Labor Relations Act and is also un-enforceable under the Federal Arbitration Act,” the judges said.

The 3-judge panel explained the NLRA’s key Section 7 not only gives workers the right to organize, but also, quoting the law, gives them the right to “other concerted activities” of any type to protect themselves. The “other concerted activities” clause includes filing class action suits, the judges said. And it includes suing under the NLRA as a class if the company breaks wage and hours law.

Section 8 of the National Labor Relations Act enforces the law “unconditionally by deeming that it ‘shall be an unfair labor practice for an employer…to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7.'” And the board, the judges said, “is empowered. to prevent any person from engaging in any unfair labor practice.”

Contracts “stipulating the renunciation by the employees of rights guaranteed by the NLRA are unlawful and may be declared to be unenforceable by the board,” the judges said.

Citing cases going all the way back to 1939 – four years after the NLRA was passed – the appeals court noted that: “Wherever private contracts conflict with the (labor) board’s functions, they obviously must yield or the NLRA would be reduced to a futility.”

And the Federal Arbitration Act doesn’t overrule labor law, as Epic claimed it did, the judges added. That’s because while Congress passed that law to encourage arbitration, and indeed while arbitration of grievances is a key feature of many union contracts, lawmakers did not elevate the federal arbitration law over other federal labor laws.

“The NLRA prohibits the enforcement of contract provisions like Epic’s, which strip away employees’ rights to engage in ‘concerted activities,'” Harvard Law Professor Benjamin Sachs wrote in a legal blog analyzing the case. “Because the provision at issue is unlawful under Section 7 of the NLRA, it is illegal, and meets the criteria of” an arbitration act clause that provides for non-enforcement of arbitration rulings.

“Even under the Supreme Court’s recent arbitration cases, no arbitration agreement can require the waiver of substantive statutory rights,” Sachs said. “Procedural rights may be waived, but not substantive ones.

“So, for example, although you might be required to waive your procedural right to bring an age discrimination claim in court, you cannot be required to waive your substantive right to be protected against age discrimination. Here, the 7^th Circuit correctly observes the right to act collectively is the substantive right provided by the National Labor Relations Act. Indeed, the right to act collectively is the heart of federal labor law,” Sachs said.

No arbitration agreement can force a worker – union or individual – to waive that substantive right, he added.

Neither Epic nor business groups commented on the 7^th Circuit’s ruling or whether they would appeal it to the U.S. Supreme Court. The AFL-CIO also did not comment. But two years ago, it noted the ruling by the 5-person majority of justices in the Hobby Lobby case-which let for-profit corporations use religious objections to deny contraceptive coverage to female workers – was part of “a disturbing trend” on the Supreme Court’s part to “expand corporate rights and powers” including forcing workers and consumers into mandatory arbitration.

Image: Alliance for Justice, from the short documentary on forced arbitration, “Lost in the Fine Print.”