As a condition of employment, Ernst & Young’s employees were required to sign agreements that contained a “concerted action” waiver requiring employees to pursue legal claims against E&Y exclusively through arbitration, and arbitrate only as individuals in “separate proceedings”. An employee brought a class action against E&Y in the United States District Court for the Northern District of California alleging violations of the Fair Labor Standards Act. E&Y moved to compel arbitration and was granted such relief by the District Court, which dismissed the class action. On appeal, a divided U.S. Court of Appeals for the Ninth Circuit reversed, holding that the concerted action waiver in E&Y’s employment agreements violated Sections 7 and 8 of the National Labor Relations Act – specifically, the National Labor Relations Board’s interpretation that such waivers violate that Act. Moreover, because the Ninth Circuit concluded that an employee’s right to act collectively was substantive, rather than procedural, the court further held that the Board’s ban on class action waivers did not conflict with the Federal Arbitration Act, finding that when an arbitration provision effectively waives a substantive federal right, the so-called “savings clause” of the Federal Arbitration precludes enforcement of that waiver.

Our prior blog posts discussed the developing split among federal circuit courts on this issue. For example, in Cellular Sales of Missouri, LLC v. National Labor Relations Board, No. 15-1620 (8th Cir. June 2, 2016), the Eighth Circuit held that arbitration provisions in employment agreements waiving class actions are enforceable. (See also Fifth Circuit, enforcing such provisions; (same). By contrast, in Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016), the Seventh Circuit reached a similar result as the Ninth Circuit. This emerging split, coupled with the use of these types of provisions in employment agreements, may result in the United States Supreme Court ultimately deciding to address the issue. Morris v. Ernst & Young, LLP, No. 13-16599 (9th Cir. Aug. 22, 2016).