Many employers require employees to sign documents as a condition of employment. Confidentiality agreements, employment agreements, non-compete agreements are just some of the documents that may be required as a condition of starting a job. Some agreements may have clauses requiring employees to pursue claims against the employer through arbitration instead of bringing a case in court. A 9th U.S. Circuit Court of Appeals ruling brings these so-called “concerted action waivers” under scrutiny.
In August, the Court of Appeals for the 9th Circuit issued a ruling against Ernst & Young holding that the inclusion of a class action waiver in their arbitration agreement was unenforceable under federal labor law. Employees of Ernst & Young were required, as a condition of employment, to sign a waiver stating that they would bring claims against the company through arbitration and that they must “arbitrate only as individuals and in separate proceedings.”
Two employees of Ernst & Young, Stephen Morris and Kelly McDaniel, filed a class and collective action suit under the Fair Labor Standards Act (FLSA). This lawsuit alleged that employees were misclassified and denied overtime pay. Ernst & Young said arbitration of the matter was required. Ernst & Young contended that under the Federal Arbitration Act, courts can’t ‘disfavor’ arbitration, and that the concerted action waiver trumps the NLRA and should be enforced as written.
The court in the majority opinion stated that the two laws (FLSA and Federal Arbitration Act) were not in conflict with one another. They found that the employee contract itself was flawed, because it would deny employees’ rights under the NLRA to act as a group. The court made its ruling based heavily on Section 7 & 8 of the National Labor Relations Act (NLRA), stating that employees have a statutory right “to engage in . . . concerted activities for the purpose of . . . mutual aid or protection” to include a right “to join together to pursue workplace grievances, including through litigation.”
In its ruling, the 9th Circuit Court of Appeals reference previous cases brought before the National Labor Relations Board (NLRB) holding that an employer violates the NLRA “when it requires employees covered by the Act, as a condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial.” Section 8 of the NLRA makes it “an unfair labor practice for an employer . . . to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in [§ 7].” Section 7 of the NLRA establishes employee rights under the law and section 8 enforces them.
The dissent stated that the mandatory arbitration agreement did not violate the NLRA because employees could still exercise their right to act collectively by hiring the same lawyers and by sharing resources. Given the 2-1 split decision of the Circuit Court and that two appellate courts have previously rejected the NLRB’s view that “federal labor law prohibits workers' arbitration agreements from including class action waivers,” it’s likely that the Supreme Court will have to give clarifying interpretation to the NLRA and Federal Arbitration Act. Depending on whether the Supreme Court issues such clarification or allows the Circuit Court’s ruling to stand, the outcome will ultimately determine the enforceability of these types of waivers. Employers using required employee arbitration agreements should be aware of this case and follow future developments in this area.
