Ninth Circuit Decides Against Class Action Waivers

By: Kyle D. Kring and Tyler Kring

Posted on September 1, 2016

On August 22, 2016, the Ninth Circuit joined the Seventh Circuit and the National Labor Relations Board (NLRB) with their ruling in Morris v. Ernst & Young LLP regarding class action waivers. The court found that arbitration agreements containing class action waivers violated employees' rights to bring class and collective actions against an employer.

The decision is a big loss for employers in the class action waiver dispute due to the likelihood that individuals will bring claims collectively rather than individually. It is very common for employers to include these waivers in employment agreements in order to avoid costly class and collective litigation.

In Morris, two employees of Ernst & Young brought a class action suit against their employer for misclassification and denying overtime wages in violation of the Fair Labor Standards Act (FLSA). As a condition of employment, these two employees along with others were required to sign agreements not to join with other employees in bringing claims against the company. The Ninth Circuit held that: "(1) concerted action waiver . . . violated the NLRA by interfering with right of employees to pursue work-related legal claims together, and (2) concerted action waiver was unenforceable under the Federal Arbitration Act (FAA)." Interestingly, the court did not extend its ruling to waivers contained in agreements that are not required to be signed as a condition of employment.

Prior to Morris, the only appellate court to adopt the NLRB's stance was the Seventh Circuit in Lewis v. Epic-Systems Corp., deciding in May that worker arbitration agreements with class action waivers are illegal. The Second, Fifth, Eighth, Eleventh and the California Supreme Court have all rejected the NLRB's decisions in D.R. Horton and Murphy Oil, USA, Inc. What remains is a large Circuit split that leads many to believe that the Supreme Court will soon address the issue.

Meanwhile, as a result of the Morris case, employers in California and within the jurisdiction of the Ninth Circuit who have employment arbitration agreements containing class and collective action waivers will face the increased likelihood that they might be exposed to class actions. While the Morris decision technically has no controlling precedential value for California state courts interpreting state law, and the California Supreme Court has previously rejected the NLRB's position in the DR Horton case, the case will likely lead to further erosion of the enforceability of class action waivers under California law, which are still technically enforceable.

Kring & Chung will keep its clients updated should a case go up to the California Supreme Court or California Appellate Courts. Contact an experienced employment attorney at Kring & Chung, LLP with any questions related to the current enforceability of class and collective action waiver disputes in arbitration agreements.

Kyle Kring is the Managing Partner of Kring & Chung, LLP. He can be reached at (949) 345-1621 or kkring@kringandchung.com.com. Tyler D. Kring is a law clerk with Kring & Chung,LLP's Irvine, CA office and can be reached at tkring@kringandchung.com.

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