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Ninth Circuit Strikes Down Class Action Waiver in Arbitration Agreement

On August 22, 2016 the Ninth Circuit Court of Appeals in Morris v. Ernst & Young, LLP ruled that class action waivers in arbitration agreements required by employers as a condition of employment are illegal and unenforceable, because they violate the National Labor Relations Act (NLRA).  The opinion was a split 2-1 decision with a strong dissent by Judge Ikuta, who noted that three other Federal Courts of Appeal have decided that class action waivers in employer promulgated arbitration agreements are valid and enforceable and that several recent U.S. Supreme Court decisions have favored individual rather than class-based arbitration under the Federal Arbitration Act.

There is now a pronounced split in the Circuit Courts, as the Ninth Circuit and Seventh Circuit have adopted the National Labor Relations Board’s position that filing and being part of a class action is a substantive right that is protected, concerted activity under the NLRA.  The opposing view of the Second, Fifth, and Eighth Circuit is that a class action is a procedural device created by the courts for the courts’ convenience and not a substantive right.  These courts follow U.S. Supreme Court precedent in a series of recent cases upholding the validity of class action waivers in arbitration agreements.

Ultimately, the U.S. Supreme Court will have to resolve this split in the Federal Courts of Appeal.  Presently there is a 4-4 split on the U.S. Supreme Court between conservative justices and liberal justices, so this issue may not be decided until a new U.S. Supreme Court justice is appointed by the next President and confirmed by the Senate.

Our recommendation to employers who have arbitration agreements with class action waivers is to do nothing at present to modify those agreements.  California State courts are required to follow the California Supreme Court’s 2014 decision in Iskanian v. CLS Transportation Los Angeles which held that class action waivers in employer promulgated arbitration agreements are valid and enforceable.  Therefore, the protections afforded to employers by these agreements will continue for employers who are sued in the California State Court system.

If you wish to discuss this issue and how it could affect your company’s arbitration agreement, please contact one of our labor and employment attorneys.