On August 22, 2016, the U.S. Court of Appeals for the Ninth Circuit joined the Seventh Circuit in finding that an employer violates the National Labor Relations Act (“NLRA”) by requiring employees to sign an agreement including a class arbitration waiver.

In Morris v. Ernst & Young, plaintiffs were required to sign “concerted action waivers” as a condition of their employment.  The “concerted action waiver” required employees to (1) pursue legal claims against Ernst & Young exclusively through arbitration and (2) arbitrate only as individuals and in “separate proceedings.”

Plaintiffs argued that the “separate proceedings” clause contravened three federal statutes: The NLRA, the Norris LaGuardia Act, and the Fair Labor Standards Act. Plaintiffs relied in particular on a determination by the National Labor Relations Board (“NLRB”) in D.R. Horton that concerted action waivers violate the NLRA.

Reviewing the NLRB’s interpretation of the NLRA under a Chevron standard, the court found that the intent of Congress was clear from the statute and consistent with the NLRB’s interpretation.  Section 7 of the NLRA provides that “Employees shall have the right to self-organization, to form, join or assist labor organization, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8 enforces the rights enumerated in § 7 by making it an unfair labor practice for an employer to interfere with, retrain or coerce employees in the exercise of rights guaranteed in § 7.

The court found that the NLRB’s interpretation of § 7 and § 8 was correct, and applying the sections to the terms of the contract made the concerted action waiver unenforceable. Furthermore, the court found that the Federal Arbitration Act (“FAA”) did not dictate a contrary result.  The court characterized the right to pursue legal claims together under § 7 as substantive, so the FAA would not mandate the enforcement of a contract that alleges the waiver  The court also found that the savings clause in the FAA prevented the need for a conflict between the NLRA and the FAA.  In sum, when an arbitration contract professes to waive a substantive federal right, the savings clause of the FAA prevents enforcement of that waiver.

With this decision, the Ninth Circuit joins the Seventh Circuit on the unenforceability of class action waivers in employment agreements.  In contrast, the Second, Fifth, and Eighth Circuits have concluded that the NLRA does not invalidate collective action waivers in arbitration agreements.

 

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