Ninth Circuit Holds "More is Better" By Affirming Right to Collective Litigation Despite Arbitration Agreements to the Contrary
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Ninth Circuit Holds "More is Better" By Affirming Right to Collective Litigation Despite Arbitration Agreements to the Contrary
Employers received their most bruising loss in the ongoing war involving class action waivers on August 22, 2016, as the 9th Circuit Court of Appeals became the second federal circuit to strike them down as illegal. When the 7th Circuit issued an opinion earlier this year and became the first appeals court to make such a ruling, employers could view the decision as an anomaly and take comfort in the fact that all other courts reaching a decision had upheld class waivers. But today’s decision changes the national legal landscape (Morris v. Ernst & Young).
The 9th Circuit covers a wide swath across the western U.S. – California, Washington, Arizona, Nevada, Oregon, Hawaii, Idaho, Montana, and Alaska – and this decision will immediately impact tens of millions of workers. It also could mark the beginning of a trend, as employers should be concerned that the NLRB’s sustained attack against class waivers has now gained significant momentum.
Background:
Class Waivers Are Popular
Agreements requiring employees to submit workplace claims to an arbitrator
instead of a judge have become increasingly commonplace in today’s workplaces.
But mandatory arbitration agreements in and of themselves do not protect
employers from their biggest fear – a class or collective action. Consequently,
rather than simply requiring employees to bring workplace claims through
arbitration instead of court, employers have regularly incorporated into their
agreements class and collective action waivers. Pursuant to these waivers,
employees agree not to pursue claims against their employer on a class or
collective basis. The result of a mandatory arbitration agreement with a class
and collective action waiver is that a worker’s only avenue for redress is
limited to single-plaintiff arbitration hearings.
Labor
Board Does Not Like Class Waivers
The National Labor Relations Board (NLRB), however, has issued several rulings
striking down class action waivers as violating the National Labor Relations
Act (NLRA) in recent years. Most notably, in 2012, the Board said that
arbitration agreements are unlawful if they prevent employees from filing class
action claims in court or arbitration (D.R.
Horton). Although that decision was
rejected by a federal court, the NLRB nonetheless continued to attack class waivers
whenever possible, issuing several decisions similar to D.R. Horton.
Courts
Had Consistently Upheld Class Waivers
Between 2013 and May 2016, three federal circuit courts ruled on this exact
issue and determined that the NLRA does not prohibit class waivers—the 5th
Circuit (Texas, Louisiana, and Mississippi), the 2nd Circuit (Connecticut, New
York, and Vermont), and the 8th Circuit (Arkansas, Iowa, Minnesota, Missouri,
Nebraska, North Dakota, and South Dakota). In 2014, the 11th Circuit
(Georgia, Florida, and Alabama) came to the same conclusion in upholding class
waivers, although the decision did not directly involve the NLRB question.
Cracks
Begin To Appear
On May 26, 2016, the 7th Circuit (Illinois, Indiana, and Wisconsin) became the
first appeals court to adopt the NLRB’s position and strike down class
waivers.
The court said that class waivers violate Section 7 of the NLRA because they
interfere with workers’ rights to engage in concerted activity (in this case,
class action litigation) for their mutual benefit and protection. The court
opined that there is nothing quite so "concerted" as a piece of class action
litigation, where employees band together to collectively assert a legal
challenge to a workplace practice.
The
Dam Bursts: Morris v. Ernst & Young
On August 22, 2016, however, employers’ worst fears were confirmed when the 9th
Circuit Court of Appeals echoed the 7th Circuit’s reasoning and also determined
that certain class waivers violate the NLRA.
Just as the 7th Circuit ruled in Epic Systems, the court held that employers interfere with the right of all employees – not just those unionized – to engage in concerted activity under the NLRA by requiring them to pursue claims in separate proceedings. Section 7 of the NLRA provides a statutory right to employees to engage in concerted activities for their mutual aid or protection, and the court determined this included class action litigation. By concluding that the rights established by Section 7 of the NLRA were substantive in nature and not just procedural, the court ruled that these rights could never be waived via a standard mandatory arbitration agreement or any other similar mechanism.
What’s
Next For Employers?
There is hope that a full panel of 9th Circuit judges could agree to hear the
case on an en banc basis and
overturn the 2-1 decision. This could be especially true given that one of the
three judges on the panel wrote a 17-page dissent labeling this ruling as
"breathtaking in its scope and in its error." However, absent any such ruling
(or an interim order putting this decision on hold while an en bancreview could be litigated), this decision is now the law of the land across
most of the western U.S.
Unless and until the 9th Circuit reverses its own decision or the Supreme Court intervenes and settles the matter, employers should be prepared to adjust to this new ruling.
If you have any questions about this new ruling, or how it may affect your organization, please contact your Christine Baran (cbaran@fisherphillips.com) or Colin Calvert (ccalvert@fisherphillips.com) or one of the attorneys in any of our California offices:
Irvine: 949.851.2424
Los Angeles: 213.330.4500
Sacramento: 916.503.1430
San Diego: 858.597.9600
