In a potentially significant ruling, a three judge panel of the Ninth Circuit ruled Tuesday “that an employer violates § 7 and § 8 of the National Labor Relations Act [“NLRA”] by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms of conditions of employment. The panel held that Ernst & Young interfered with the employees’ right to engage in concerted activity under the National Labor Relations Act by requiring the employees to resolve all of their legal claims in ‘separate proceedings.’ The panel concluded that the ‘separate proceedings’ terms in the Ernst & Young contracts could not be enforced.”
The decision essentially adopts the reasoning by the National Labor Relations Board (“NLRB”) in D.R. Horton, Inc., 357 NLRB No. 184 (2012) and subsequent NLRB decisions (such as Murphy Oil USA, Inc., 361 NLRB No. 72 (2014)). In D.R. Horton, the NLRB held that mandatory arbitration agreements which required employees to waive the right to bring class or collective actions violated the NLRA. Murphy Oil USA invalidated a similar agreement, and concluded that the “reasoning and result” in Horton were correct.
The reasoning in D.R. Horton, however, has been widely criticized by federal district courts and many Circuit Courts of Appeals, including the Second, Fifth, and Eighth Circuits. The Ninth Circuit’s decision puts it in the minority of courts (along with the Seventh Circuit), that agree with the reasoning in D.R. Horton. The circuit split sets the stage for the issue to be considered by the Supreme Court.
Nonetheless, the decision, unless and until an en banc rehearing is granted by Ninth Circuit or review is granted by the United States Supreme Court, means that class action waivers in mandatory employment arbitration agreements will not be enforced by federal district courts in the Ninth Circuit. We will continue to monitor this development, but in the meantime, employers should work closely with their counsel in drafting, and possibly revising, their arbitration agreements.
The opinion in Morris v. Ernst & Young, LLP can be found here.
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