The Ninth Circuit recently found unenforceable a class (or “collective”) action waiver requiring employees to arbitrate their claims individually. In other words, requiring class action waivers as a condition of hire or continued employment violates the National Labor Relations Act (NLRA). The NLRA applies to both unionized and many private, non-unionized workforces and protects covered employees’ rights to engage in concerted activity for the purpose of mutual aid or protection.
The facts of the case, Morris v. Ernst & Young, are as follows: An employee filed a class action in federal court claiming that Ernst & Young misclassified employees to avoid paying overtime. Another employee proceeded to join the case. This was despite agreements signed by the employees stating that the employees must pursue any and all claims against their employer in individual (and not class or collective) arbitration proceedings. The federal district court ordered the two employees’ claims to individual arbitration, and the employees appealed.
The Court found the class action waiver violated the NLRA concluding that pursuing class or collective legal action against an employer, whether in arbitration or any other forum, is protected concerted activity. The NLRA gives employees the right to act together to try to improve their pay and working conditions, with or without a union. Therefore, according to the Court, the agreement’s requirement that employees pursue claims individually impermissibly interfered with their rights under the NLRA.
In light of Morris, many California businesses will need to update their employment policies. It appears that, generally speaking, there are three main options for employers currently using class and collective action waivers in their arbitration agreements:
(1) leave the waivers in place and wait to see whether the case is taken to Supreme Court;
(2) strip out the waivers; or
(3) leave the waivers in place, but insert a severability clause that would provide courts with an additional basis to uphold the arbitration agreement generally even if the waiver is struck down.
Discuss your options with experienced legal counsel.
For more information on class action waivers, or employment agreements generally, contact business lawyer Drew E. Pomerance today.