Ninth Circuit Widens Circuit Split on Enforceability of Class and Collective Action Waivers

August 9, 2016 Shar Bahmani Employment Law

The Ninth Circuit joins the Seventh Circuit and NLRB, determining that class action waivers violate the National Labor Relations Act and are therefore unenforceable.

This article was published in the August 23, 2016, issue of the National Law Review.

See a follow-up article re: the U.S. Supreme Court’s May 21, 2018, ruling.

The question is simple: does an employer violate the National Labor Relations Act (NLRA) by requiring employees to sign an agreement precluding them from bringing class and collective actions regarding their wages, hours, and terms and conditions of employment, and instead to arbitrate those claims on an individual basis?

The answer, on the other hand, varies depending on which forum and which appellate court an employer happens to find itself in.

The central players on this issue, until recently, have been the National Labor Relations Board (NLRB) and the Fifth Circuit. The NLRB repeatedly has made clear its view on the matter, holding in dozens of cases that class and collective action waivers in individual employment arbitration agreements violate the NLRA. Unfortunately for the NLRB, employers have the option to appeal an NLRB decision to the D.C. Circuit, or to any circuit in which the business has sufficient business operations. As a result, employers with operations in Texas, Louisiana, or Mississippi have appealed adverse NLRB decisions invalidating their collective action waivers to the Fifth Circuit, where the Court has rejected the NLRB’s position not once but twice and has consistently ruled that class and collective action waivers are lawful and unenforceable under the Federal Arbitration Act.

The national narrative followed this same pattern – with the NLRB finding the waivers unlawful and the federal appellate courts disagreeing with the NLRB – until this past May when the Seventh Circuit sided with NLRB’s interpretation on the issue. The Seventh Circuit explained that given the NLRA’s “intentionally broad sweep, there is no reason to think that Congress meant to exclude [protection of] collective remedies from its compass.” The Seventh Circuit decision made it the first and only federal appellate court to side with position staked out by the NLRB.

Until now.

On August 22, a split three-judge Ninth Circuit panel issued an opinion agreeing with the Seventh Circuit and NLRB on this issue.The plaintiffs in the Ninth Circuit decision are a group of employees who filed a class-action lawsuit alleging that their employer improperly classified them as exempt from California and federal law requiring that they be paid overtime compensation. Their employer sought to dismiss the lawsuit on based on arbitration agreements the putative class members signed in which they agreed to waive their right to bring class or collective action claims and instead to arbitrate their claims on an individual basis. The Ninth Circuit panel refused to enforce the waivers, explaining that in its view, it is a well-established principle that “employees have the right to pursue work-related legal claims together,” and this right “is the essential, substantive right established by the NLRA.”

The Ninth Circuit remanded the case to the District Court with instructions for the Court to determine whether the collective action waiver was severable from the remaining provisions of the agreement, specifically the agreement’s arbitration provision.

The Ninth Circuit decision widens the circuit split, making it much more likely this issue of class and makes its way to the Supreme Court, sooner, rather than later. However, given that the Supreme Court is operating at less than a full complement, it remains to be seen whether the NLRB risks a split decision and appeals the Fifth Circuit’s Murphy Oil decision, or whether it sits back and waits for one of the employers in recent Seventh and Ninth Circuit decisions to take the matter to the nation’s high court. Until then, employers in the Seventh and Ninth Circuit are unable to avoid class and collective actions by enforcing waivers.

The Ninth Circuit case is Stephen Morris et al., v. Ernst & Young, LLP et al., Case No. 5:12-cv-04964-RMW (9th Cir. Aug. 22, 2016.)