Emphasizing the importance of upholding arbitration agreements, the Ninth U.S. Circuit Court of Appeals compelled arbitration in an employee’s wage and hour suit despite the employer’s delay in asserting its rights.
Former Ernst & Young financial managing associate Melissa Richards filed suit, making various wage-related claims, seeking unpaid overtime, compensation for the failure to provide meal and rest breaks, and injunctive relief.
The case proceeded through pretrial actions, including discovery and a federal district court ruling dismissing some of Richards’ claims. Only after years of litigation (and a favorable decision from the U.S. Supreme Court in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011)) did Ernst & Young file a motion to compel arbitration based upon a provision in Richards’ employment agreement.
Richards objected. She said E&Y had waived its rights by not raising the issue in a case brought by two other employees that was consolidated with hers. She also argued that E&Y shouldn’t be allowed to switch gears at such a late date after she had already spent years incurring costs and litigating the case.
Arbitration agreements must be upheld, the federal appellate panel concluded, and the waiver of a contractual right to arbitrate is disfavored by courts. Richards failed to meet her heavy burden to overcome this presumption. Even the lower court’s ruling dismissing some of her claims was not a decision on the merits because one dismissal was based on a jurisdictional issue and the other claim was dismissed without prejudice.
Further, the money Richards spent on discovery could be useful in arbitration and constituted “self-inflicted” expenses, the court said. “Richards was a ‘part[y] to an agreement making arbitration of disputes mandatory,’ and therefore ‘[a]ny extra expense incurred as a result of [Ms. Richards’] deliberate choice of an improper forum, in contravention of their contract, cannot be charged to’ Ernst & Young,” the court wrote.
As a fallback argument, Richards suggested the Ninth Circuit rely upon a decision from the National Labor Relations Board, D.R. Horton. In that case, the Board held that an employer could not enforce an arbitration provision because it contained a class waiver, which violated the employee’s rights to engage in “concerted action for mutual aid or protection” under the National Labor Relations Act.
Joining the majority of other courts to have considered the application of Horton–including federal courts in Arkansas, California and New York, as well as the Second and Eighth Circuits–the Ninth Circuit said the Board’s decision “conflicts with the explicit pronouncements of the Supreme Court concerning the policies undergirding the Federal Arbitration Act” and declined to follow it.
Emphasizing the U.S. Supreme Court’s proarbitration stance made explicit in several recent rulings, the panel said it must “rigorously enforce” arbitration agreements according to their terms.
To read the decision in Richards v. Ernst & Young, click here.
Why it matters: For employers seeking to enforce arbitration agreements – particularly those containing waivers of class or collective rights – the Richards decision has a lot to like. Not only did the court find that a delay in asserting arbitration rights did not prejudice the plaintiff, but also the court declined to adopt the NLRB’s position disfavoring arbitration agreements. Instead, the Ninth Circuit joined the majority of courts to consider the issue and threw its support behind arbitration in the employment context. Even where employees file a lawsuit against an employer and challenge an underlying arbitration agreement, employers in the Ninth Circuit are able to compel arbitration.