The 9th Circuit Court of Appeals, in a 2-1 decision, struck down
an arbitration clause in an employment agreement that barred
workers from pursuing class action claims. In Stephen Morris,
et al. v. Ernst & Young LLP, et al., Case No. 13-16599,
the 9th Circuit ruled that mandatory class action waivers violate
the right to engage in concerted action under federal labor
Morris involves an Ernst & Young employment
agreement that requires, as a condition of employment, employees to
sign agreements that contain a "concerted action waiver,"
requiring the employee to pursue legal claims against Ernst &
Young exclusively through arbitration, and to arbitrate only as
individuals and in "separate proceedings." The court
decided, 2-1 that Ernst & Young's employment agreement
forbidding the workers from joining together violated the right to
engage in concerted action under federal labor law. Specifically,
the panel held that an employer violates §7 and §8 of the
National Labor Relations Act ("NLRA") by requiring
employees to sign an agreement precluding them from bringing, in
any forum, a concerted legal claim regarding wages, hours and
terms of conditions of employment. The court in Morris
held that, by doing so, Ernst & Young interferes with the
employee's right to engage in concerted activity under the
NLRA, and ruled that "the separate proceedings" terms
could not be enforced.
Morris turned on a well established principle that
employees have the right to pursue work related legal claims
together. 29 USC §157. Concerted activity, the right of
employees to act together, is the essential substantive right
established by the NLRA. 29 USC §157. The court in
Morris held that Ernst & Young interfered with that
right when it required employees to sign contracts pledging to
resolve all their legal claims in "separate
The decision stems from a potential class action lawsuit filed
in 2012 by former Ernst & Young employees Stephen Morris and
Kelly McDaniel, who accused the firm of failing to pay overtime to
audit staff members. The District Court dismissed their case,
relying on the concerted action waivers that both plaintiffs signed
as a condition of employment. Because the waivers required they
pursue legal claims against the firm through arbitration and only
as individuals in separate proceedings, the court dismissed their
action, despite plaintiffs' argument that the waivers violated
fair labor laws.
In response, Ernst & Young countered that the Federal
Arbitration Act ("FAA") effectively supersedes the NLRA
and entitled it to enforce the terms of the employment contract.
Writing for the majority, U.S. Circuit Judge Sidney R. Thomas state
that the problem was not that the contract required arbitration,
but that "the contract term defeats a substantive federal
right to pursue concerted work-related legal claims." The
judge wrote "[t]he rights established in [Section 7] of the
NLRA - including right of employees to pursue legal claims together
- are substantive," as opposed to just procedural. "They
are the central, fundamental protections of the Act so the FAA does
not mandate the enforcement of a contract that alleges their
This decision widened the split among appeals courts, following
the 7th Circuit's similar ruling in May. However, at least two
other courts, the 5th Circuit and the 8th Circuit, and have decided
the waivers do not violate the NLRA. Notably, the 9th Circuit did
not extend its ruling to waivers in agreements that aren't
required to be signed as a condition of employment. This leaves
open the question as to whether opt-out agreements are still
enforceable in the 9th Circuit.
Epic Systems, the defendant in the 7th Circuit case decided
in May 2016, has already filed a notice indicating that it plans to
appeal the decision in its case to the Supreme Court. It remains to
be seen whether Ernst & Young plans to ask the full 9th Circuit
to review the decision.
This decision leaves employers in a state of uncertainty, as
they will have to contend which different standards they will have
to follow based on the recent inconsistent rulings from circuit
courts. Because of this, the class waiver battle appears at this
point to be destined for the U.S. Supreme Court. Stay tuned.
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