Delaware Bankruptcy Court Holds Employer’s Class Arbitration Waiver Violates NLRA

In a case of first impression, a Delaware bankruptcy court has ruled that a class-action waiver included in an employer’s arbitration agreement violates the National Labor Relations Act (“NLRA”) despite containing a 30-day opt-out clause.  In In re: Fresh & Easy, LLC, No. 1:15-bk-12220 (Oct. 11, 2016), a former grocery store worker, Chan, filed a class-action lawsuit against her former employer under the U.S. Worker Adjustment and Retraining Notification Act.  According to Chan, the now-defunct grocery chain failed to provide both herself and other similarly situated employees with 60 days notice prior to layoffs as required by the Act.   In response to Chan’s lawsuit, the grocery chain filed a motion to compel individual arbitration pursuant to the terms of the employer’s arbitration agreement.

Chan countered her former employer’s motion by claiming the class waiver included in the arbitral agreement she signed in 2013 violated the NLRA under the Seventh Circuit Court of Appeals’ recent decision in Lewis v. Epic Systems Corp.  Although Seventh Circuit decisions are not precedential in Delaware, the bankruptcy court agreed with Chan and denied the grocery chain’s motion.  In its decision, the court held Chan’s right to bring a class-action case was a substantive right under Section 7 of the NLRA.  In addition, the Delaware court said Chan’s ability to opt-out of the arbitral agreement within 30 days of signing it had no bearing on whether the clause violated the NLRA.  The bankruptcy court also ruled the entire agreement to arbitrate was unenforceable despite a savings clause because severing the class waiver would necessarily change the intent of the parties’ agreement.

Oddly, the same court held in an unconsolidated adversary action that it lacked the authority to prevent the grocery store chain from enforcing the arbitral provision against another former grocery store chain worker in June.  Despite that the employee’s agreement to arbitrate was essentially identical to the one signed by Chan, the plaintiff in the adversary action did not rely on the Seventh Circuit’s decision in Epic Systems.

The holding in this case highlights a widening split between circuit courts regarding the issue of class-action waivers included in an employer’s arbitration agreement.  As discussed in a prior blog post, the Supreme Court of the United States is currently considering several petitions for certiorari regarding the issue.

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