Morris v. Ernst & Young -The Ninth Circuit Follows D.R. Horton
In an important decision for workers seeking to join together to enforce their employment rights, the Ninth Circuit Court of Appeals ruled in Morris v. Ernst & Young 
(https://cdn.ca9.uscourts.gov/datastore/opinions/2016/08/22/13-16599.pdf) that employers can not impose concerted action waivers in mandatory arbitration agreements. The Ninth Circuit held that employers violate Sections 7 and 8 of the National Labor Relations Act (“NLRA”) by requiring employees to waive their right to participate in “concerted activities” such as class and collective actions. With Morris, the Ninth Circuit joins the Seventh Circuit (Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016)), which was the first federal Circuit Court to adopt the National Labor Relations Board (“NLRB”) position in D.R. Horton, Inc., 357 NLRB No. 184 (2012).
In Morris, employees filed a class and collective action alleging that their employer had misclassified certain employees as exempt from overtime in violation of the Fair Labor Standards Act (“FLSA”) and California labor laws. These employees were required to sign agreements that had a “concerted action wavier” that required them (1) to pursue legal claims against Ernst & Young exclusively through arbitration, and (2) to arbitrate as individuals in “separate proceedings.”
The Court explained that:
This case turns on a well-established principal: employees have the right to pursue work-related legal claims together. 29 U.S.C. § 157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978). Concerted activity – the right of employees to act together – is the essential substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in “separate proceedings.” Accordingly the concerted action waiver violates the NLRA and cannot be enforced.
Although the Federal Arbitration Act (“FAA”) creates a “federal policy favoring arbitration,” it also has a “savings clause” that allows courts to refuse to enforce arbitration agreements that interfere with or defeat rights provided by other federal laws – federal rights such as the right to engage in concerted activity under the NLRA. The problem with Ernst & Young’s arbitration agreement was not that it prevented employees from proceeding with their claims in court, but that it forced workers to waive their right to pursue claims collectively under the NLRA or other federal laws, such as the FLSA. As Chief Judge Thomas explained:
The same infirmity would exist if the contract required disputes to be resolved through casting lots, coin toss, duel, trial by ordeal or any other dispute resolution mechanism, if the contract limited resolution to that mechanism and required separate individual proceedings.
Other circuit courts have taken a quite different position and have enforced employers’ concerted action waivers under the FAA. See Cellular Sales of Missouri, LLC v. N.L.R.B., 824 F.3d 772, 776 (8th Cir. June 2, 2016); Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1053-54 (8th Cir. 2013); D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 361 (5th Cir. 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013).
The U.S. Supreme Court is likely to take up this important issue now that there is a split of opinion between the Circuit Courts.
The Arbitration Struggle Continues: One (more) Courageous Judge Stands Up For Workers
The Chinese philosopher Laozi is reputed to have said that a journey of a thousand miles begins with a single step. A corollary is that a long journey only continues if people are courageous enough to continue it, despite the daunting odds they may face.
A California federal judge recently joined the group of jurists who have been courageous enough to push back against the efforts to force workers and consumers out of court and into binding arbitration. The ills and abuses associated with employment arbitration are well documented, and will not be revisited here. (The New York Times ran an excellent series about those ills and abuses in 2015, which revealed that Chief Justice John Roberts of the United States Supreme Court was among the attorneys who came up with the legal strategy of forcing people into arbitration.) But it is encouraging that the struggle over arbitration is far from over, and there are some glimmers of hope for workers.
In Totten v. Kellogg Brown & Root, U.S. District Judge Dolly M. Gee denied defendant KBR’s motion to compel individual arbitration in a wage and hour class action. Judge Gee did so despite the fact that the plaintiff had signed an agreement to arbitrate his grievances in an individual manner. Judge Gee based her order on the D.R. Horton, Inc. case, a decision of the National Labor Relations Board. In D.R. Horton, the Board found that class actions are protected concerted activity under the National Labor Relations Act (NLRA). As such, private agreements that ban such class actions are unenforceable. (more…)
When Are Union Members Required To Arbitrate Their Wage and Hour Claims? Only when the CBA Clearly and Unmistakably Waives Their Right to a Judicial Forum
An issue that sometimes arises for union members who are subject to a collective bargaining agreement (CBA) is whether they must use the grievance and arbitration mechanism provided for in the CBA for any wage and hour claims (failure to pay overtime, failure to provide meal and rest breaks, etc.), or whether they can sue in court. Federal and state authorities establish that the primary test for resolving this question is whether the CBA clearly and unmistakably provides that union members must arbitrate their statutory claims. Under the primary test, broad and vague language is not enough. The CBA must explicitly state that it requires individuals to arbitrate their statutory claims. Federal and state authorities also establish an alternative test. Under the alternative test, a general arbitration clause coupled with an explicit incorporation of statutory requirements elsewhere in the CBA may result in a requirement that the employees arbitrate their statutory claims. These tests are both explored in more detail below. (more…)
An Epic Dissent: Justice Werdegar Nails it in Iskanian
The majority opinion in Iskanian has been discussed at length, both here and in every other employment blog that touches on California law. What has been overlooked, however, is the incredibly eloquent and persuasive dissenting (and concurring in part) opinion written by Justice Kathryn Werdegar.
The fundamental points made by Justice Werdegar are that (1) class actions are a form of collective action; (2) Congress has made it clear for eighty years that contracts that strip employees of the right to engage in collective action are illegal; and (3) therefore class action waivers are illegal and unenforceable.
Ninth Circuit Clarifies Some Issues and Ducks Others Regarding Arbitration Agreements
The Court of Appeal for the Ninth Circuit recently issued a pair of decisions that help to clarify the law surrounding arbitration agreements: Davis v. Nordstrom (holding that no particular form of notice is required to modify existing arbitration agreements) and Johnmohammadi v. Bloomingdale’s (opportunity to opt out of arbitration agreements with class action waiver defeats argument that federal labor laws bar such waivers).
In Davis v. Nordstrom, Inc. (9th Cir.2014) 2014 DJDAR 8019 the court clarified the law with respect to whether and how an employer can modify an existing arbitration agreement so as to prohibit class actions. The plaintiff in Davis had received an employee handbook that required arbitration but permitted class actions. In 2011, Nordstrom revised the arbitration agreement to bar class actions.
The Wolf Guarding the Henhouse: Should Arbitrators Decide Whether To Enforce Arbitration Agreements?
When an employee files a lawsuit in court, and the employer tries to compel the employee to proceed in arbitration based on an arbitration agreement, who gets to decide whether the arbitration agreement is enforceable? Is it the judge who is presiding over the employee’s case? Or is it an arbitrator? For more than five years, the rule in California-which we think is fair-has been that the judge decides. However, the recent decision of Tiri v. Lucky Chances, Inc. (May 15, 2014) 2014 DJDAR 6103 introduces confusion into this previously settled question. (more…)
The California Supreme Court and the fate of Class Actions
The California Supreme Court heard oral argument on April 3, 2014, in a case that is likely to significantly shape the landscape of class actions in both state and federal court: Iskanian v. CLS Transportation, No. S204032. The Supreme Court granted review in Iskanian to resolve two important questions: (more…)
The Profoundly Negative Impact of Arbitration on Workers’ Rights
Lawyers who represent employers regularly argue that there is no real difference between arbitration and jury trials. They contend that arbitration does not affect the outcomes of cases. And, it is “cheap and quick,” and the employer pays for the arbitrator. So what are workers complaining about, anyway?
But as more and more employment cases are decided in arbitration, there are more and more data confirming the profoundly negative impact that arbitrations have on workers’ rights. There are usually two main questions in litigation: who wins, and what do they get. The answer to each of these questions swings dramatically in favor of employers when employment disputes are forced into arbitration.
In other words, when workers are forced to arbitrate their claims, their likelihood of winning plummets. In the event that workers win at arbitration, they are awarded much less money than the workers who win in state and federal court.
On February 27, 2014, Professor Alexander J.S. Colvin and Ph.D. Candidate Mark Gough (both from Cornell University’s School of Industrial and Labor Relations) gave an outstanding talk at Berkeley Law exploring the impact of arbitration on the outcome of employment litigation. The statistics they discussed include the following:
1. Professor Colvin’s research found “gross differences in arbitral and litigation outcomes.” Overall, employees had a 57% win rate in state court trials, a 36% win rate in federal court trials, and a 21.4% win rate in AAA arbitration awards. The average damages in state court were $328,000; in federal court $143,500; and in AAA arbitration $23,500.
2. Mark Gough concluded that “Arbitration has a significant independent effect on employee outcomes:
- Arbitration decreases the odds of an employee win by 59%
- Award amounts decrease by 35% in arbitration”
These findings are astonishing, but not surprising. This is exactly why employers are pushing so hard to get employment disputes decided in arbitration. This is exactly why those who fight for workers’ rights must continue to resist this trend.
Another powerful statistic that Dr. Colvin shared was that 77% of employers were represented in arbitrations by employment law specialists, while only 55% of employees were represented in arbitrations by employment law specialists. Similarly, 55% of employers were represented by law firms handling multiple abitration cases that year. Only 11% of employees were represented by law firms handling multiple arbitration cases that year. This scenario creates a perfect storm for employers: arbitrations are more difficult forums for workers, and workers are represented by lawyers who are not familiar with the arbitration process.
The attorneys at Hunter Pyle Law are committed to fighting for workers’ rights, no matter what the forum. If you have a question about arbitration, please do not hesitate to contact us at 510.444.4400 or inquire@hunterpylelaw.com.
***The quotations from Professor Colvin and Mr. Gough are used here with permission. Their talk was part of a day-long conference regarding called Forced Arbitration In The Workplace: A Symposium and organized by The Berkeley Journal of Employment and Labor Law (BJELL) and The Employee Rights Advocacy Institute For Law & Policy.
If You Care About Your Rights In The Workplace, You Should Care A Lot About Italian Colors
For many years, the United States Supreme Court has recognized that an agreement to arbitrate will not be enforced if it prevents the effective vindication of federal statutory rights. This rule, called the “effective vindication rule,” has its origins in a case from 1985 called Mitsubishi Motors v. Soler, 473 U.S. 614. Its purpose is simple: to prevent corporations (and others) from crafting arbitration agreements that will for all practical purposes deprive ordinary people of their day in court.
Significantly, from 1985 until now, the effective vindication rule has been repeated and reiterated over and over again. As Justice Kagan’s forceful dissent in American Express v. Italian Colors explains:
[I]n the decades since Mitsubishi, we have repeated its admonition time and again, instructing courts not to enforce an arbitration agreement that effectively (even if not explicitly) forecloses a plaintiff from remedying the violation of a federal statutory right. Slip Op. at 4.
Unfortunately, on June 20, 2013, five justices on the Supreme Court decided that almost 30 years of the effective vindication rule had come to an end. In Italian Colors, those five justices compelled a small company to arbitrate its claims against the gigantic American Express Corporation (“Amex”). (more…)
Saving Your Constitutional Right To A Day In Court: The Arbitration Fairness Act
Imagine after months of unemployment (not hard to imagine these days), you survive a rigorous application and interviewing process to finally arrive at that climactic moment of landing a job. In your state of euphoria, and as day one as a perfect no-hassle employee. You hastily review and sign the standard new hire documents you’re given, knowing that there is nothing you could do about the content, anyways. You sign everything and vaguely hope you haven’t signed away the soul of your first born.
A while later, well after the new job excitement has worn off, you realize that maybe you should be getting paid for overtime, or maybe your supervisor should stop referring to you by a racial nickname. Maybe you complain about these new discoveries in your workplace, and are promptly fired.
No problem! You know you have rights. You contact an attorney with the intention of filing a lawsuit. Then you realize, those new hire documents you signed on day one have come back to haunt you. You’re informed that you signed an arbitration agreement and have to submit to binding arbitration. Binding arbitration with an arbitrator chosen (and paid) by your now nemesis. (more…)