Companies can't stop employees from joining together in legal actions, court rules

Companies can't require their employees to sign an arbitration clause that prevents them from banding together in legal actions, a federal appeals court ruled on Thursday.

The case revolved around Epic Systems, a giant Wisconsin-based healthcare software provider, which required its employees to individually settle any disputes against the company through arbitration. An employee sued the company after it denied him and others overtime wages. Epic tried to have the case thrown out on the basis of the arbitration clause the employees had signed.

In its opinion, a three-judge panel for the United States Court of Appeals for the Seventh Circuit said Epic's arbitration requirement violated the National Labor Relations Act, which gives employees the right to form or join labor organizations and participate in collective bargaining. The panel also noted that while the Federal Arbitration Act may protect some arbitration clauses, the law still allows for illegal clauses to be thrown out.

The court's decision is a “major move in the opposite direction,” Benjamin Sachs, a labor law professor at Harvard Law School, told the New York Times.

“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,” Sachs said. “Most of the court decisions have facilitated this development.”

Thursday's decision clashes with an earlier decision from a Louisiana appeals court, with similar cases proceeding across the country, the NYT reported. That disagreement may open the issue up to possible consideration by the Supreme Court.