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January 31, 2024

The Practical Effects of Epic Systems v. Lewis

By Emma E. Knatterud-Johnson, Jason J. Knutson and David Zoeller
Of those 60 million workers, nearly half are further bound by waivers that disallow class or collective claims.

Of those 60 million workers, nearly half are further bound by waivers that disallow class or collective claims.

Almost 60 million workers in the United States are subject to mandatory arbitration agreements for employment-related legal disputes—more than a third of all workers. Mandatory arbitration happens when an employer requires, as a condition of employment, that its employees waive their right to sue in court, and instead must arbitrate all claims before a private arbitrator. A mandatory arbitration agreement is given in a “take-it-or-leave-it” situation, where it is a requirement to get or keep the job. Workers impacted by these kinds of provisions waive the right to their day in court, and must instead have their cases heard in a private forum selected and paid for by their employer, which rarely includes the same rights to discovery, cross-examination, juries, appeals, and other tools available in civil litigation and in the courtroom.

Of those 60 million workers, nearly half are further bound by waivers that disallow class or collective claims. Such waivers prevent workers with small claims from aggregating those claims and pooling their resources, which is almost always necessary to vindicate small claims in a cost-effective manner. As a consequence, individually small claims involving lost wages and overtime often never see the light of day.

Our firms represented a putative class of employees bound by class-action waivers in Epic Systems v. Lewis, 138 S. Ct. 1612 (2018), in which we argued that such waivers violate workers’ rights to engage in concerted activity under Section 7 of the National Labor Relations Act. After our position was adopted by the district court and the Seventh Circuit Court of Appeals, a five-justice majority of the Supreme Court sided with the employer, holding that the class-action waivers were enforceable under the Federal Arbitration Act. Following this decision, the use of mandatory arbitration and class-action waivers in both employment contracts and consumer contracts has ballooned.

But once the gears of arbitration start to turn, companies who imposed mandatory arbitration agreements can end up wishing they had not pushed them in the first place, finding themselves in the position of the proverbial dog who actually caught the car. Our firms’ litigation with Epic Systems in the years following the company’s victory at the Supreme Court highlights the problems of the arbitration system, strips the facade from its claimed advantages, and reveals the impact of mandatory employment arbitration agreements containing class action waivers. The results may surprise many businesses currently favoring forced arbitration.

After Epic Systems, the company’s employees with employment-related legal claims have had to pursue their claims through individual arbitration proceedings. Our firms represented 21 former Epic Systems employees in their unpaid overtime claims against Epic Systems, resulting in 19 victories and two losses for our clients. In these 21 cases, Epic Systems has paid over $1.9 million in known costs to litigate the claims of these employees through individual mandatory arbitration—over $565,000 of which was paid to the arbitrator and the American Arbitration Association (AAA) to administer and run arbitration proceedings. Epic Systems has likely paid an additional seven-figure sum to its own attorneys, though that amount is unknown to us. These 21 cases have resulted in average damages awards of around $4,400–and average known costs to Epic Systems of approximately $92,000 per case in addition to their own attorney fees. For reference, using the same average damage amount of $4,400, the $1.9 million spent by Epic Systems on these arbitrations would have paid overtime wages and liquidated damages of around 400 workers in a class action. Instead, despite the tremendous amounts of money that Epic Systems has spent on mandatory individual arbitration, only 19 workers have been made whole. In other words, if Epic Systems had not required individual arbitration, it would likely have spent less money to litigate the claims of the entire class through traditional means, and far more of that money would have gone directly to class members rather than to private arbitrators and the AAA.

Our firms’ representation of these 21 former Epic Systems employees shows that mandatory arbitration combined with class-action waivers can easily result in a lose-lose situation for both workers and employers. So where do we go from here? First, legislation can extend the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act to other forms of discrimination against federally protected classes of individuals (i.e., race, sex, age) as well as claims for unpaid wages. Second, employees and consumers can go the route of mass individual arbitration to try to achieve justice or at least a large settlement of their legal claims, perhaps pressuring defendants to settle claims on a collective basis to avoid the tremendous costs of mass individual arbitration. Third, Congress can amend the Federal Arbitration Act (FAA) to exempt employment and consumer arbitration or provide more protection for employment and consumer rights in arbitration as, arguably, the FAA was never intended to cover these claims. See, e.g., Gilmer v. Interstate Johnson Lane Corp., 500 U.S. 20 (1991) (Stevens, J., dissenting). Fourth, employers and companies can retain mandatory arbitration agreements but remove class-action waivers from the agreements, allowing individuals to pool their claims through the arbitration process. Finally, employers and companies can remove mandatory arbitration provisions from their contracts entirely, returning these claims to court. 

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Emma E. Knatterud-Johnson

Associate of Hawks Quindel, S.C.

Emma E. Knatterud-Johnson is an associate of Hawks Quindel, S.C. in Madison, Wisconsin. In her practice, she represents workers in wrongful termination, discrimination and retaliation, as well as employment contract matters in state and federal court and before administrative agencies. She also represents labor unions in administrative proceedings and litigation.

Jason J. Knutson

Shareholder of Habush Habush & Rottier

Jason J. Knutson is a shareholder of Habush Habush & Rottier in Madison, Wisconsin. His practice features complex litigation, such as major environmental and industrial accidents, and class action claims. He also handles cases of medical malpractice, product liability and personal injury.

David Zoeller

Shareholder of Hawks Quindel, S.C.

David Zoeller is a shareholder of Hawks Quindel, S.C. in Madison, Wisconsin. His practice focuses on helping employees recover unpaid wages, including overtime wages, through both individual and class action cases.