A federal appeals court on Thursday ruled that companies cannot force their employees to sign away their right to band together in legal actions, delivering a major victory for American workers and opening an opportunity for the Supreme Court to weigh in.
The United States Court of Appeals for the Seventh Circuit in Chicago struck down an arbitration clause that banned employees from joining together as a class and required workers to battle the employer one by one outside of court.
In its opinion, the three-judge panel said that Epic Systems, a Verona, Wis., health care software provider, violated federal labor law when it required its workers to bring any disputes individually to arbitration, a private system of justice where there is no judge or jury.
“The increasing use of mandatory arbitration agreements and the prohibition on workers proceeding as a class has been one of the most major developments in employment the last decade,” said Benjamin Sachs, a professor of labor law at Harvard Law School. “Most of the court decisions have facilitated this development. This is a major move in the opposite direction.”
By preventing employees from joining together in a collective action, the court said, the arbitration clause ran afoul of a critical piece of the National Labor Relations Act, a landmark 1935 law that gave workers the right to unionize and engage in concerted action.
The decision announced on Thursday, in Lewis v. Epic Systems, will almost certainly prove controversial because it directly conflicts with an earlier decision by an appeals court in Louisiana, a split that could prompt the Supreme Court to wade back into the fray. Similar cases are pending across the country.
In a pair of decisions in 2011 and 2013, the Supreme Court blessed the widespread use of arbitration in a case pushed by a group of credit card companies. The credit card companies turned to a 1925 federal law that formalized arbitration as a means for companies to hash out their disputes with one another.
Arbitration clauses have proliferated over the last 10 years. Companies have added them to tens of millions of contracts for things as diverse as cellphone service and nursing home care.