Despite the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC, affirming the use of class action waivers in arbitration agreements, the Ninth Circuit has held that an arbitration agreement containing a class action waiver violated the National Labor Relations Act (NLRA), and was therefore, unenforceable.
In Morris v. Ernst & Young LLP, the Ninth Circuit adopted the National Labor Relations Board’s (NLRB) interpretation that a mandatory class action waiver that precludes class actions in any forum violates Sections 7 and 8 of the NLRA. Section 7 affords employees the right to “engage in concerted activities…or other mutual aid and protection.” Section 8 states that it is an “unfair labor practice for an employer…to interfere with, restrain, or coerce employees in the exercise of their rights [set forth in Section 7].” The Morris court concluded that the provision that required employees to bring only “separate proceedings” against the employer (as opposed to collective proceedings) violated both Sections 7 and 8 because it interfered with the employees’ rights to bring collective actions.
The court also held that the Federal Arbitration Act (FAA) – which generally favors the enforceability of arbitration agreements – did not require a contrary holding. The court explained that the FAA’s “savings clause” prevents enforcement of a waiver of a substantive right. Because the court concluded that the Section 7 rights “including the right of employees to pursue legal claims together – are substantive” (and not procedural) the waiver at issue was unenforceable.
This decision sides with the Seventh Circuit’s opinion in Lewis v. Epic Systems Corporation (which we discussed here) but is at odds with the Fifth Circuit’s opinion in D.R. Horton, Inc. v. National Labor Relations Board – which upheld class action waivers in arbitration agreements finding they do not violate the NLRA. With the Ninth Circuit’s affirmation, it seems the issue is now ripe for review. In fact, on September 2, 2016, the defendant in Lewis filed a petition for writ of certiorari in the U.S. Supreme Court.
For California employers, the Morris decision does not completely change the legal landscape. California state courts are still bound by the California Supreme Court’s holding in Iskanian, which disagreed with the NLRB’s interpretation regarding class action waivers. That court instead held that arbitration agreements can contain class action waivers (except waivers of representative actions under the Private Attorneys General Act (PAGA)). Thus, in cases involving a class action waiver, California employers will be more likely to avoid a class action if the case is before a state court judge – and should consider moving to remand if a putative class action is filed in federal court.
Until the United States Supreme Court decides the issue (which could be in the near future), class action waivers before judges in the Seventh and Ninth Circuits are likely to be struck down as unenforceable.