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.