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Ninth Circuit Voids Class Waiver Provision Contained In Arbitration Agreement

August 24, 2016 by

In an important victory for workers and worker advocates, this week the Ninth Circuit held that employers may not insist that their employees agree to class action waivers, typically contained in arbitration provisions, because such a waiver violates rights protected by Section 7 of the National Labor Relations Act (‘NLRA”).  Some court have held the Federal Arbitration Act (“FAA”), a federal law that requires the enforcement of arbitration agreements supersedes the rights afforded by the NLRA.

These class waiver agreements, which have typically been approved by the courts, force employees to pursue claims singly, in individual cases.  In essence, they insulate employers from any meaningful liability for wage theft, discrimination and other abuses that might affect the entire workforce, or a group of the workforce.

Section 7 of the NLRA secures the rights of employees to engage in “concerted activity” for “mutual aid and protection.”  On a number of occasions the National Labor Relations Board has held that class and collective actions are a form of protected concerted activity under Section 7, and that requiring employees to waive the right constitutes an unfair labor practice (under section 8(a) of the NLRA).

In Morris v. Ernst & Young, the Ninth Circuit agreed with the NLRB’s reasoning and found that a class waiver provision was unenforceable.  Employees of the accounting firm alleged they had been misclassified as exempt from overtime pay, and sued for unpaid overtime under the federal Fair Labor Standards Act.  In response, Ernst & Young asserted that the arbitration agreements that the employees signed as a condition of employment required their overtime case to proceed in single proceedings, and forbade pursing them from proceeding as a group, because the Federal Arbitration Act required the enforcement of the class waiver.

The Ninth Circuit held the class action waivers clearly violated section 7 of the NLRA, and that the FAA must yield to the NLRA’s protections.  The Ninth Circuit noted that its decision did not conflict with the FAA, because it did not affect whether the claims must be arbitrated, only that the class waiver was invalid because it prohibited concerted legal action in any forum.  Because the NLRA creates essential employment rights, or “substantive” rights, an employee cannot be required to waive them which is what the class waiver accomplished for the employer.  In other words, just because the class waiver language was put in the arbitration agreement did not mean it is the type of provision the FAA was intended to make enforceable.  Simply, the case is not about the arbitration agreement at all, but about a requirement that employees waive rights under the NLRA, which is clearly illegal.

The decision, which is designated for publication, is Morris v. Ernst & Young, No. 13-16599, __ (9th Cir. August 22, 2016)

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