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Schultz v. Epic Systems Corp.

United States District Court, W.D. Wisconsin

March 25, 2019

KATE SCHULTZ, individually and on behalf of all others similarly situated, Plaintiff,


          William M. Conley, District Judge.

         On December 12, 2016, plaintiff Kate Schultz filed a “Collective and Class Action Complaint” against her then-employer, Epic Systems Corporation, seeking to represent quality assurance employees who were “commonly misclassified as exempt from overtime wages under state and federal law.” (Compl. (dkt. #1) 1 (capitalization altered).) In response, Epic filed a motion to dismiss and compel individual arbitration (Mot. Dismiss (dkt. #8) 1) under a Mutual Arbitration Agreement Regarding Wages and Hours (the “Arbitration Agreement” or the “Agreement”), which requires all wage claims be submitted to individual arbitration (Def.'s MTD Br. (dkt. #9) 1).

         After plaintiff filed her opposition, the parties requested and the court stayed all proceedings in light of the Supreme Court's grant of certiorari in Epic Systems Corporation v. Lewis, No. 16-285. (See J. Mot. Stay (dkt. #17) 1-3; Jan. 31, 2017 Order (dkt. #18).) On May 21, 2018, the Supreme Court issued its decision, explaining that “Congress has instructed that arbitration agreements like those before us must be enforced as written, ” reversing the Seventh Circuit's contrary decision. Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1632 (2018). The following day, this court asked plaintiff to explain why Lewis did not require the court to grant defendant's pending motion. (May 26, 2018 Order (dkt. #26).) Plaintiff responded that “Epic's Arbitration Agreement is procedurally and substantively unconscionable, ” an issue she raised briefly in a footnote in her opposition brief (Pl.'s Req. Extension of Time (dkt. #27) 2 (citing Pl.'s Opp'n (dkt. #12) 13 n.6)) and a possible defense arguably left open in light of Lewis, see 138 S.Ct. at 1622-23. Having agreed to at least consider these unconscionability arguments also, the court agreed to accept additional submissions by the parties on those arguments.[1] (June 12, 2018 Order (dkt. #29).) For the reasons that follow, the court now concludes that all issues before it in this case must be decided in the first instance in arbitration.


         Plaintiff Kate Schultz and the members of her putative class were employed by Epic as quality assurance employees during the three years immediately preceding the filing of the lawsuit. These employees were deemed to be exempt from overtime wages by Epic. Instead, they were paid fixed salaries that were not dependent on the hours they worked. Nevertheless, plaintiff alleges her colleagues and she performed job duties that were not exempt from the Fair Labor Standards Act's overtime requirements as they were not responsible for managing Epic's customers or business operations, nor were they required to use discretion or independent judgment on significant matters. Specifically, she alleges that their main job was to perform quality assurance work on software produced by Epic; more specifically, they used the software and documented problems they encountered. As such, none of these employees were skilled in computers, such as software engineers, system analysts, or computer programmers might be. In particular, they lacked a software background. Plaintiff alleges that quality assurance employees routinely worked over 40 hours in a week and did not receive overtime compensation. Moreover, she alleges that Epic knew or should have known this because it assigned the work and required quality assurance employees to record their hours.

         On March 29, 2016, Epic circulated an Arbitration Agreement to its quality assurance employees via email; that Agreement had an effective date of April 12, 2016. (Def.'s MTD Br. (dkt. #9) 2-3.) Among other things, the email explained that Epic began shifting to arbitration for wage-and-hour claims in April 2014, but did not include the quality assurance employees due to a then-ongoing lawsuit. (Mar. 29, 2016 Email (dkt. #10-2) 2.)[3] The email also explained that:

We believe the benefits of arbitration outweigh litigation, which can be inefficient and wasteful. Arbitration is a process outside of the court system that will allow you to pursue your individual claims with many of the rights and procedures that would be available in a lawsuit. The same laws apply in both. The arbitrator (whom you would participate in selecting) would be directed to reach a legal conclusion just as a judge would. The arbitrator can provide the same remedies as if you were in court. However, because arbitration puts some reasonable limits on processes, by addressing the merits of your claim through arbitration, rather than through individual litigation or class action, disputes can be resolved more quickly, with less expense and without the extraordinary distraction from our work that litigation often imposes.

(Id.) Additionally, the email noted that the attached agreement became effective on April 12, 2016, “provided you remain employed on that date.” (Id.) Also attached to the email was a FAQ document about arbitration. (See id.)

         The Agreement itself includes mutual promises to arbitrate:

Epic Systems Corporation (“Epic”) and I agree to use binding arbitration, instead of going to court, for any “covered claims” that arise or have arisen between me and Epic, its related and affiliated companies, and/or any current or former employee of Epic or a related or affiliated company. I understand that if I continue to work at Epic, I will be deemed to have accepted this Agreement.
I understand and agree that arbitration is the only litigation forum for resolving covered claims, and that both Epic and I are waiving the right to a trial before a judge or jury in federal or state court in favor of arbitration.

(Arbitration Agreement (dkt. #10-1) 2 (emphasis original).) It defines “covered claims” as “any statutory or common law legal claims, asserted or unasserted, alleging the underpayment or overpayment of wages, expenses, loans, reimbursements, bonuses, commissions, advances, or any element of compensation, . . . or any other claimed violation of wage-and-hour practices or procedures under local, state or federal statutory or common law” including “based on claims of eligibility for overtime.” (Id.) Further, the Agreement provided for a waiver of class and collective claims:

I also agree that covered claims will be arbitrated only on an individual basis, and that both Epic and I waive the right to participate in or receive money or any other relief from any class, collective, or representative proceeding. No. party may bring a claim on behalf of other individuals, and any arbitrator hearing my claim may not: (i) participate in or facilitate notification of others of potential claims; or (ii) arbitrate any form of a class, collective, or representative proceeding.

(Id.) Specifically excluded from the Agreement are “claims alleging discrimination, harassment, or retaliation, ” and “any claims that cannot be required to be arbitrated as a matter of law.” (Id.) Finally, the Agreement expressly provides that both sides shall have the right to legal representation in arbitration (although neither would be entitled to attorneys' fees unless provided for by law) before laying out the rules governing the arbitration procedures. (Id. at 3.)

         Attached to the email circulating the Agreement was a document entitled “FAQs re Mutual Arbitration Agreement.” (See generally, FAQs (dkt. #10-2) 9-10.) That document explained: (1) the Agreement was to arbitrate wage and hour claims, in lieu of court litigation; (2) the Agreement did not extend to all claims, but only wage and hour claims; (3) “[a]rbitration is a forum for dispute resolution where the dispute is presented by each side to a neutral decision-maker, an arbitrator, who then makes a decision on the appropriate outcome”; (4) “arbitration is essentially an informal trial in front of the arbitrator, ” which is “typically not appealable, ” while litigation is longer and more formal, in which “issues may be presented to a judge or jury (or both), ” with the possibility of appeal, “often adding a period of years before final resolution of the case”; (5) arbitration was selected, in part, to resolve claims “more quickly and efficiently” and because it “can be considerably less costly for both parties than litigation”; (6) Epic would pay the arbitrator and administrative fees, “[o]ther than a filing fee, which would be the same or less than in state court”; and (7) the American Arbitration Association would select the arbitrator from a list of possible arbitrators after the parties had reviewed, struck, and ranked the options. (Id.) The FAQ document also confirmed that the Agreement required the waiver of class claims, adding that

A class claim requires you to participate as part of a larger group. Because any individual employee's issues or concerns will not be particularly important to resolution of a class claim, they may not get addressed at all. Individual arbitration focuses on the individual claim of the employee. Class action claims are also complex to litigate; they take a long time and they involve lots of legal fees to defend. Additionally, attorneys, not employees, are ...

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