In Morris v. Ernst & Young LLP (9th Cir. No. 13-16599) plaintiffs brought a class action against the accounting firm Ernst & Young for misclassification, FLSA (Fair Labor Standards Act) and California labor laws violations. Ultimately on August 22, the US Court of Appeals for the Ninth Circuit ruled that Class Action Waivers in employment arbitration agreements are unenforceable.
In Morris v. Ernst & Young, an employee (Stephen Morris) filed in federal court a class and collective action alleging Ernst & Young misclassified employees to avoid paying overtime. Another employee (Kelly McDaniel) later joined the case. Both employees, as a condition of employment with Ernst & Young, had signed an arbitration agreement providing that covered disputes pertaining to different employees would be arbitrated individually in separate proceedings. In other words, each employee signed agreements compelling them to pursue any claims against their employer in individual (and not class or collective) arbitration proceedings. The federal district court ordered the two employees' claims to individual arbitration, and the employees appealed.
Ninth Circuit Ruling
A three-member panel of the Ninth Circuit issued a split decision in the Morris case. The majority found the class and collective action waiver violated the National Labor Relations Act (NLRA). The NLRA applies to both unionized and private, non-unionized work forces and protects covered employees' rights to engage in concerted activity for the purpose of mutual aid or protection. The majority concluded that pursuing class or collective legal action against an employer, whether in arbitration or any other forum, is protected concerted activity. Thus, the agreement's requirement that employees pursue claims individually impermissible interfered with their rights under the NLRA.
In her dissent, Ninth Circuit Judge Sandra Ikuta asserted that the class and collective action waiver is enforceable under U.S. Supreme Court precedent, and criticized the opinion as “breathtaking in its scope and in its error.” Ikuta argued the “language [of the NLRA] can be harmonized with enforcement of an arbitration agreement that waives class action mechanisms.” She also cautioned that the majority's conclusion threatens to “cripple” employment arbitration as an approach to dispute resolution, as class procedural mechanisms interfere with arbitration and “eviscerate the principal benefits of arbitration—speed and informality, ‘making the process slower, more costly, and more likely to generate procedural morass than final judgment.'”
Impact on Employers with Arbitration Agreements
With this decision, the Ninth Circuit ruled similarly to the Seventh Circuit which recently held that a class action waiver in arbitration agreements was unenforceable as it violated employees' rights under the NLRA. Other circuits, notably the Second, Eighth and Fifth, held to the contrary, validating class action waivers in employment arbitration agreements. As the Fifth Circuit explained, “neither the NLRA's text nor its legislative history contains a congressional command prohibiting such waivers.” Due to the circuit split, it is likely the matter will be taken up to the U.S. Supreme Court.
Until the Supreme Court rules on the NLRB's position, employers will face uncertainty, and the enforcement of various arbitration agreements will depend on where the challenge to arbitration is made. The California Supreme Court has rejected the NLRB's position and ruled that class and collective action waivers are enforceable because the NLRA does not override the FAA. The California Supreme Court did not decide, however, whether an agreement that more broadly restricts collective activity (such as prohibiting joint or consolidated claims) would violate the NLRA.
An experienced California employment lawyer can quickly answer your questions about arbitration agreements and employee/employer rights. Should you have any questions about employment law or class actions in California, don't hesitate to contact leading California employment lawyers at Kingsley & Kingsley. Call and speak to an experienced California lawyer toll-free at (888) 500-8469 or contact Kingsley & Kingsley via email.