Ninth Circuit Court Rejects Class Action Waivers In Arbitration Agreements

Volume 15, Issue 21
September 14, 2016

On August 22, 2016, the Ninth Circuit Court of Appeals, with jurisdiction over Nevada federal cases, ruled in the matter of Morris v. Ernst & Young, LLP that an employer cannot preclude employees from arbitrating claims challenging their terms and conditions of employment as a class or group. The Court ruled that class and collective action waivers in arbitration agreements violate the National Labor Relations Act (NLRA).

As a condition of employment, the employees in this case signed an arbitration agreement that required them to arbitrate any legal claims against their employer, Ernst & Young. The agreement also required them to pursue any arbitration claims against their employer as individuals in "separate proceedings." Thus, the agreement prohibited the employees from bringing any claims against their employer as part of a class or collective group. When the employee-plaintiffs brought a class and collective action lawsuit against Ernst & Young arguing that they were owed overtime under the Fair Labor Standards Act, the employer naturally asked the court to require individual arbitrations pursuant to the terms of the arbitration agreement.

Ultimately, the Ninth Circuit Court ruled against Ernst & Young, agreeing with one other federal circuit court that class action waivers in arbitration agreements are illegal because they prevent employees from exercising an essential right under the NLRA - the right to act together to challenge the terms and conditions of their employment. Many other circuit courts disagree, and it is possible that the U.S. Supreme Court will consider the matter in the future. For now, however, Nevada employers are bound by the Ninth Circuit Court's ruling.

In light of this important ruling, we recommend that you review your employment agreements and policies to determine whether you have arbitration agreements requiring a waiver of class or collective actions. If you do, please contact us so that we can discuss your options for these agreements.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.