Divide Deepens Over Enforceability of Class Arbitration Waivers
Miller & Martin PLLC Alerts | August 24, 2016
The U.S. Court of Appeals for the Ninth Circuit (covering California and eight other western states) on Monday joined the Seventh Circuit, and disagreed with the Fifth Circuit, in rejecting a mandatory employment arbitration agreement which contained a class action waiver. The agreement at issue required employees to resolve any claims against the employer in arbitration, rather than in court, and precluded them from bringing a class, collective or other group action in any forum. The Ninth Circuit in Morris v. Ernst & Young, LLP (9th Cir. Aug. 22, 2016), held that this class arbitration waiver violated the employees' right to engage in "concerted activity," as protected by Section 7 of the National Labor Relations Act (the "NLRA").
In so holding, the Ninth Circuit accepted the position that the National Labor Relations Board (the "NLRB") first adopted in D.R. Horton, 357 NLRB No. 184 (2012). The Fifth Circuit (covering Texas, Louisiana, and Mississippi) subsequently declined to enforce this ruling in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013), and last year again rejected the NLRB’s position in Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015). By contrast, the Seventh Circuit (covering Illinois, Indiana and Wisconsin) earlier this year agreed with the NLRB's position on class arbitration waivers in Lewis v. Epic Systems Corp., 2016 WL 3029464 (7th Cir. May 26, 2016).
By adding to the split among the Circuit Courts of Appeal, the Ernst & Young decision may set the stage for the U.S. Supreme Court to resolve the issue. The NLRB will continue to attack class arbitration waivers unless and until the Supreme Court rejects this position, but the Supreme Court was unlikely to enter the fray until a split developed among the appellate courts. In recent years, the Supreme Court, citing the strong policy favoring arbitration under the Federal Arbitration Act, has consistently favored arbitration agreements, but it has not ruled on this specific issue. Moreover, the make-up of the Supreme Court remains in flux.
In the meantime, employers should not necessarily throw out any arbitration programs they currently have in place. Even the Ninth Circuit in Ernst & Young acknowledged its prior decision in Johmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072 (9th Cir. 2014), which found no NLRA violation where an employee had the ability to opt out of an arbitration program but failed to do so. That said, the NLRB has repeatedly ruled that even an opt out provision does not save an arbitration agreement with a class waiver. There is no one right answer for all employers as to whether to implement arbitration agreements, jury waivers or some other alternative dispute resolution program. Class action protection has been one of the key benefits of such programs for employers, so the unsettled state of the law introduces more uncertainty into the equation.
Should you have questions about this decision, mandatory employment arbitration agreements or other alternative dispute resolution programs generally, please contact Brad Harvey, Chuck Lee or any other member of our Labor & Employment Law Practice Group.