Ninth Circuit Decision May Severely Limit the Scope of Arbitration Agreements

Ninth Circuit Decision May Severely Limit the Scope of Arbitration Agreements

The Ninth Circuit recently rendered a decision further limiting the types of claims that could be included in employment arbitration agreements. In Morris v. Ernst & Young, the Ninth Circuit sided with the National Labor Relations Board (NLRB) in ruling that it is a violation of the National Labor Relations Act (NLRA) for an employer to condition employment on an employee signing an arbitration agreement that waives the employee’s ability to pursue claims on a class or collective basis, and instead requires that all claims be resolved on an individual basis in arbitration.

While Morris is a victory for employees, there is a jurisdictional split between California State Court, the Ninth Circuit, and the other Courts of Appeal faced with this issue. The NLRB led the charge against such agreements characterizing them as invalid through their opinion, in D.R. Horton. The Seventh Circuit offered its support, but many of the Courts of Appeal (Second, Fifth, and Eighth) rejected the NLRB’s position. California State Courts also disagree with the NLRB, and have enforced class action waivers in employment arbitration agreements.

Unfortunately, there will be no clarity on the issue until it is inevitably heard by the Supreme Court. Not only do the various courts disagree, the Supreme Court needs to address if the violation arises when employment is conditioned on signing the waiver, or if a class waiver by itself is enough to invalidate an agreement.

Until a Supreme Court decision is rendered (which could be months, if not years from now), including a class action waiver in an arbitration agreement is a gamble. While Morris demonstrates that that the Ninth Circuit will deny such agreements, there is no guarantee that a potential claim would be filed in Federal Court. If a claim is brought in State Court, history has shown that the agreement is likely to stand. With that said, arbitration agreements in ‘in general’ are encouraged, the decision to include a class action waiver is one that employers should make after a detailed discussion with their attorney.

It is important to note that every employment law situation is unique and this article is not replacement for legal counsel. The Labor and Employment attorneys at Young Wooldridge, LLP are ready to assist business owners and employers prepare sound arbitration agreements. 

Photo Credit: Jeff’s Canon via Flickr Creative Commons

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