Federal appeals court decision could reverse employees' $10M arbitration award.

Byline: Erika Strebel, erika.strebel@wislawjournal.com

The U.S. Seventh Circuit Court of Appeals handed down a decision Monday clarifying that disputes over the interpretation of class-action waivers in employment agreements must be decided by a district court not an arbitrator.

The decision in Herrington v. Waterstone Mortgage Corp. comes on the heels of the U.S. Supreme Court's decision in Epic Systems Corp. v. Lewis, in which the justices ruled class-action waivers are enforceable in employment agreements.

Class-action waivers are contract provisions that require all disputes between parties to be resolved individually in court or in arbitration. In other words, the provisions prevent employees from banding together to sue an employer in a class action.

The decision in Epic reversed decisions handed down by both the Seventh Circuit and federal District Court Judge Barbara Crabb, who was also the presiding judge in the Herrington case.

In the Herrington case, whicharose from a dispute between a Wisconsin mortgage company and a former loan officer, Pam Herrington alleged she and other loan officers had not been paid overtime wages. Herrington filed a class-action lawsuit against Waterstone in 2011 in the Western District of Wisconsin, alleging that the company had failed to pay overtime wages owed to both her fellow loan officers and her and had breached her employment contract.

Waterstone countered by noting that Herrington had voluntarily signed an agreement calling on her to arbitrate employment disputes individually. Because ofthat agreement, Waterstone argued the court should either dismiss the case or put it on hold and send the parties to arbitration.

In a decision handed down before the U.S. Supreme Court decided the Epic case, Crabb found the trial waiver was enforceable but nonetheless struck a provision in it preventing employees from banding together in arbitration proceedings. She also ordered the parties to head to arbitration, a process that eventually resulted in Herrington and 174 other claimants receiving $10 million worth of damages and fees.

Waterstone challenged that decision, contending that its class-action waiver was valid and that the plaintiffs' collective arbitration had violated their employment agreement.

An appeal was filed in that case. While it was still pending, the U.S. Supreme Court meanwhile handed down its decision in Epic Systems Corp. v. Lewis.

The Seventh Circuit Court of Appeals judges said on...