Reversing an order denying arbitration of a former employee’s state wage-and-hour claims, and rejecting an employee’s argument that her arbitration agreement, which contained a class action waiver, was unenforceable under the National Labor Relations Board’s decision in D.R. Horton, the U.S. Court of Appeals for the Ninth Circuit in San Francisco has ruled that the employee did not prove she suffered any prejudice as a result of her employer’s alleged delay in asserting its arbitral rights. Richards v. Ernst & Young, No. 11-17530 (9th Cir. Aug. 21, 2013). Accordingly, the employer could compel the employee to arbitrate her claims. The Ninth Circuit has jurisdiction over Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

Background

Michelle Richards sued her former employer, Ernst & Young, for alleged California wage-and-hour violations. Soon after the U.S. Supreme Court decided AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), Ernst & Young asked the district court to compel arbitration. The Supreme Court in Concepcion had struck down California’s prohibition of class action waivers as preempted by the Federal Arbitration Act (9 U.S.C. §§ 1–16), because the prohibition was “an obstacle to the accomplishment and execution of the full purposes and objectives” of the FAA. The district court denied the employer’s request, finding Ernst & Young had waived its right to arbitration by failing to assert that right as a defense in an action brought previously by two other former employees (those actions had been consolidated with that of Richards). Ernst & Young appealed.

Applicable Law

A party seeking to prove waiver of a right to arbitration must demonstrate: “(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.” Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986).

Appeal Granted

Richards argued that because she had already litigated the merits of her claims in court, she was prejudiced by Ernst & Young’s allegedly belated attempt to compel arbitration. The appellate court rejected this argument. The Court pointed out that some of her claims had been dismissed without prejudice and one was dismissed for lack of standing — neither of these dismissals constituted a decision on the merits. Therefore, the Court ruled Richards was not prejudiced by the limited court proceedings.

Richards next contended that she was prejudiced because pretrial discovery had commenced, and she had incurred litigation expenses as a result. Again, the Court disagreed, noting that “self-inflicted” expenses caused by Richards’s “deliberate choice of an improper forum” were not evidence of prejudice and could not be attributed to the employer. 

Finally, Richards argued that the arbitration agreement violated the National Labor Relations Act and should be invalidated in accordance with the Board’s decision in D.R. Horton, 357 N.L.R.B. No. 184 (Jan. 3, 2012). (The Fifth Circuit is considering a petition for review, No. 12-60031, of D.R. Horton.) In D.R. Horton, the National Labor Relations Board held that employers may not require employees as a condition of employment to sign arbitration agreements containing class action waivers, because that interfered with their statutory right to engage in protected concerted activity. The Court rejected this argument, too. It stated it would not defer to the D.R. Horton rationale “because it conflict[ed] with the explicit pronouncements of the Supreme Court concerning the policies undergirding the Federal Arbitration Act.” 

Accordingly, the Court reversed the order denying the employer’s motion to compel arbitration.

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This case is welcome news for employers and perhaps signals an easing of the judicial hostility toward employee arbitration agreements seen in recent years. Employers that use arbitration agreements, including those with class action waivers, and are confronted with litigation should not delay in asserting the arbitration agreement as a defense and moving to compel arbitration. Employers that do not utilize arbitration may want to consider with counsel whether such a policy is right for them and, if so, what type of alternative dispute resolution program would work for their organization.