7th Circuit: Courts, not arbiters, decide class arbitration questions

Courts Seventh Circuit Appellate Arbitration Class Action

On October 22, the U.S. Court of Appeals for the 7th Circuit held that the availability of class or collective arbitration within an employment agreement is a threshold “question of arbitrability” that must be decided by a court. According to the opinion, an employee filed class and collection action claims against her employer for wage and hour violations. The district court compelled arbitration pursuant to an agreement between the employee and her employer but struck as unlawful a waiver clause that forbid class or collective arbitration of any claim. The case proceeded to arbitration and the arbitrator issued an award of over $10 million in damages to the employee and the other 174 claimants who had opted-in to the arbitration proceeding. The employer appealed the award, arguing that the waiver of collective arbitration provision was valid, rendering the collective arbitration in violation of the employment agreement.

On appeal, the 7th Circuit reversed and remanded the case to the district court, pointing to the Supreme Court’s recent decision in Epic Systems Corp. v. Lewis, which upheld the validity of similar provisions. (Epic held that “an arbitration agreement does not violate the National Labor Relations Act when it requires plaintiffs to pursue employment-related claims in single claimant arbitrations.”). The plaintiff also argued, however, that despite the presence of the waiver, the arbitration agreement still permitted collective arbitration. This left open the question of who interprets the agreement to determine whether collection arbitration applies—the arbitrator or the court. The 7th Circuit found for the latter, concluding that the availability of class or collective arbitration is a threshold question of arbitrability and therefore a district court, and not the arbitrator should decide its permissibility.