Court Watch

Court Strips Workers of $10 Million Award

Federal appeals court says Pewaukee company's arbitration clause bars joint claim by employees for wage, hour violations.

By , Wisconsin Justice Initiative - Nov 6th, 2018 10:46 am


A federal appeals court last week vacated a $10 million award to employees of Pewaukee’s Waterstone Mortgage Corporation for wage and hour violations because the claimants pursued arbitration as a group.

The Seventh Circuit Court of Appeals, citing the U.S. Supreme Court decision in another Wisconsin-based case involving Epic Systems, of Verona, held that a Waterstone employee’s employment agreement limiting arbitration to a single claimant does not violate the National Labor Relations Act’s protections.

Pamela Herrington sued Waterstone in U.S. District Court in Madison, asserting that the company failed to pay her minimum wages and overtime as required by the Fair Labor Standards Act (FLSA). Under FLSA, claims may be brought as collective actions, meaning that other employees may opt in to the lawsuit. Herrington filed her case as a collective action and 174 other Waterstone employees eventually joined her case.

Herrington’s employment agreement, however, contained an arbitration clause covering employment disputes. The clause said Herrington’s arbitration could not be joined with or include any claims by others against Waterstone.

U.S. District Judge Barbara B. Crabb agreed with Herrington’s argument that any waiver of the right to join the claims of others was invalid under the National Labor Relations Act (NLRA), which protects the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

Crabb’s decision aligned with applicable law at the time. The National Labor Relations Board had determined that the right to engage in concerted activities for mutual aid or protection included the right to pursue collective or class claims. The Seventh Circuit later reached the same conclusion in a case involving Epic Systems.

As a result, Crabb struck the portion of the arbitration clause that waived collective or class action. She then sent the case to arbitration with instructions that Herrington be allowed to join other employees in her arbitration proceedings. The arbitrator allowed other employees to opt in and, after further proceedings, awarded the claimants over $10 million in damages and fees.

Crabb then enforced the award through a court judgment, and Waterstone appealed to the Seventh Circuit.

While Waterstone’s appeal was pending, the U.S. Supreme Court overruled the Seventh Circuit’s decision in the Epic Systems case and held that an arbitration clause limiting arbitration to a single claimant does not violate the NLRA’s protection of concerted activities.

The Supreme Court’s decision meant the waiver in Herrington’s employment agreement was lawful and Crabb was wrong to strike it, the Seventh Circuit said in the Herrington case.

Herrington also argued the arbitration clause still allows for collective or class arbitration despite the waiver.

U.S. Circuit Judge Amy Coney Barrett, in the decision, called the argument “weak” and suggested it was “implausible,” but remanded the case to Crabb for a determination. Barrett was joined in her decision by U.S. Circuit Judges Amy J. St. Eve and William J. Bauer.

If Crabb agrees with Herrington, Crabb could confirm the $10 million award. If Crabb finds that Herrington’s arbitration is limited to her claims alone, the case could be sent back to arbitration for new proceedings.

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