Seventh Circuit Agrees That Class Arbitrability Is A Gateway Question Presumptively For The Court, Then Apparently Ignores The Delegation Issue

The Seventh Circuit Court of Appeals has joined five other Circuits in determining, unremarkably, that class or collective arbitrability is a gateway question that is presumptively for the court to decide. It then apparently ignored the issue of whether the parties delegated such arbitrability questions to an arbitrator. See Herrington v. Waterstone Mortgage Corp., No. 17-3609 (7th Cir. Oct. 22, 2018). (Yet we arguably may infer from the Court's decision that incorporation by reference in an arbitration agreement of the Employment Arbitration Rules of the American Arbitration Association does not constitute a clear and unmistakable manifestation of the parties' intent to delegate the class/collective arbitrability question to an arbitrator.)

The arbitration clause in the employment agreement in question provided in pertinent part that

"any dispute between the parties . . . arising out of their employment relationship shall be resolved through binding arbitration in accordance with the rules of the American Arbitration Association applicable to employment claims. Such arbitration may not be joined with or join or include any claims by any persons not party to this Agreement." Slip Op. at 3.

The plaintiff commenced a class action against Waterstone, her former employer, alleging wage and hour violations. The District Court compelled arbitration, but (pre-Epic) held that the class arbitration waiver was unenforceable, and the arbitrator then conducted a collective (not class) arbitration. He eventually awarded more than $10 million in damages and fees to Herrington and an opt-in "class" of 174 claimants that included employees who had not signed arbitration agreements with Waterstone. Id. at 1, 11n.6. Waterstone eventually appealed from a final judgment enforcing the arbitrator's award. Id. at 6.

The Court first determined that a waiver of class and collective actions in an arbitration clause in an employment agreement is enforceable, consistent with the Supreme Court's decision in Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018). That was "the easy part of [the] appeal." Slip Op. at 7.

Nevertheless, notwithstanding the presence of a valid waiver, claimant-appellee Herrington insisted on appeal that the agreement affirmatively permitted class or collective arbitration of her claims. The Court identified that argument as weak, but "someone must evaluate it - and we must decide who has that job." Slip Op. at 2.

The Seventh Circuit held fairly...