New cert petition asks SCOTUS to review employer bans on class actions

September 6, 2016

(Reuters) – We knew this was coming, just not quite so soon.

Epic Systems, the Wisconsin medical software company, had until Sept. 23 to file a petition asking the U.S. Supreme Court to decide whether employers can require workers to arbitrate employment disputes individually instead of banding together in group actions. Epic’s lawyers at Hogan Lovells must have thought the issue is too hot to wait. They filed Epic’s certiorari petition on Friday, arguing that the Supreme Court must step in to resolve a split that pits the 7th and 9th U.S. Circuit Courts of Appeals against the 2nd, 5th and 8th Circuits, as well as state supreme courts in California and Nevada.

If the Supreme Court grants Epic’s petition – which makes a quite compelling demand for the justices’ attention – this is going to be one of the biggest business cases in years, with the potential to end the long Supreme Court winning streak for arbitration proponents.

Epic was on the losing side of a 7th Circuit decision in May that held the company’s mandatory arbitration provision violated the National Labor Relations Act because it required employees to waive the right to proceed as a group. The 7th Circuit said workers have a substantive right under labor law to act collectively. That right, according to the appeals court, is not trumped by the Federal Arbitration Act and recent Supreme Court precedent favoring mandatory arbitration clauses – including clauses that contain class action waivers.

The 7th Circuit explicitly acknowledged that its reasoning in Epic conflicted with precedent from three other federal circuits that have concluded the Federal Arbitration Act permits employers to prohibit group actions by employees. But the 7th Circuit interpretation seems to be gaining momentum. Last month, in a wage-and-hour case against Ernst & Young, a divided three-judge panel at the 9th Circuit also held the arbitration act does not allow employers to usurp workers’ rights under the labor relations act. Like the 7th Circuit, the 9th Circuit said the key question is not whether employees must arbitrate disputes instead of going to court, but rather if employers can force workers to give up the right to act collectively in arbitration and in court.

On Friday, just as Epic was filing its cert petition, a three-judge panel at the 2nd Circuit cast doubt on the circuit’s precedent permitting employers to require classwide waivers. Citing that binding precedent, the panel affirmed the lower court’s dismissal of a wage-and-hour class action against Raymours Furniture – but the judges said that if they had been looking at the issue anew, “we might well be persuaded” by the recent 7th and 9th Circuit decisions that employers may not require employees to waive the right to act collectively.

Epic’s cert petition, of course, argues that the appellate courts on the other side of the divide from the 7th and 9th Circuits are correct. Basically, the company claims the 7th and 9th Circuits analyzed the question from the wrong starting point beginning with employees’ rights under federal labor laws. According to Epic, the courts’ first conclusion, as directed by the Supreme Court’s 2012 decision in CompuCredit v. Greenwood, should have been that the Federal Arbitration Act presumes arbitration provisions are enforceable as written. Employees bear the burden of proving other statutes overcome the presumption in favor of arbitration – and, according to Epic, they cannot meet that burden because Congress did not intend labor laws to supersede the arbitration act.

To have the chance to argue the merits of its position, Epic must persuade the justices to take its case. So the thrust of Friday’s petition is the company’s contention that both employees and employers are ill-served by the appellate split on class waivers. Companies across a vast spectrum of industries have adopted provisions requiring employees to arbitrate disputes individually, and now the legality of those provisions depends entirely on which appellate court is interpreting them. The National Labor Relations Board continues to strike down classwide waivers, Epic said, even in the 2nd, 5th and 8th Circuits where the provisions have been held to be enforceable.

Big companies with nationwide offices are in a particular pickle, according to the cert petition. “So long as this split persists, large employers will need to have one set of employment policies for employees in the 7th and 9th Circuits, and another set of policies for employees elsewhere,” Epic said. “And even then, employers operating in California or Nevada cannot know which law will govern, because the answer will depend on whether litigation is brought in state or federal court.”

Epic said its case is an ideal vehicle for the Supreme Court to use to resolve the circuit split because it directly involves an employer and employee. The NLRB, which Epic implicitly invokes as an indirect and therefore less attractive Supreme Court litigant, appeared as an amicus in the Epic litigation when it was at the 7th Circuit, so the government’s views are already part of the record of the case, Epic said.

Caitlin Madden of Hawks Quindel argued successfully at the 7th Circuit for the lead plaintiff in the Epic case, technical writer Jacob Lewis. She told me Monday that Lewis plans to oppose Epic’s cert petition. “The split may be not as deep as it appears at first blush,” she said. Right now, she added, her firm intends to handle the cert opposition itself, even as it completes briefing in the trial court on Lewis’ motion for class certification. “We are confident in the 7th Circuit decision,” she said.

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