Morris v. Ernst & Young, LLP, No. 13-16599 (9th Cir. 2016)
Annotate this CasePlaintiffs Morris and McDaniel filed suit against Ernst & Young, alleging that the company misclassified Morris and similarly situated employees and denied overtime wages under the Fair Labor Standards Act (FLSA), 29 U.S.C. 201 et seq., and California laws. Ernst & Young subsequently moved to compel arbitration under the agreements signed by Morris and McDaniel. The district court ordered arbitration and dismissed the case. Morris and McDaniel argue that their employment agreements, where they signed a "concerted action waiver" with the company, violate federal labor laws and cannot be enforced. Plaintiffs claim that the “separate proceedings” clause in the agreement contravenes three federal statutes: the National Labor Relations Act (NLRA), 29 U.S.C. 151 et. seq., the Norris LaGuardia Act, 29 U.S.C. 101 et seq., and the FLSA. The court agreed with the Board's interpretation of section 7 and section 8 of the NLRA that an employer violates the NLRA when it requires employees covered by the Act, as a condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial. In this case, the terms of the concerted action waiver are unenforceable. The “separate proceedings” clause prevents concerted activity by employees in arbitration proceedings, and the requirement that employees only use arbitration prevents the initiation of concerted legal action anywhere else. The court also concluded that the Federal Arbitration Act, 9 U.S.C. 1 et seq., does not dictate a contrary result. Accordingly, the court vacated and remanded for the district court to determine whether the “separate proceedings” clause was severable from the contract.
Court Description: Labor Law. The panel vacated the district court’s order compelling individual arbitration in an employees’ class action alleging that Ernst & Young misclassified employees to deny overtime wages in violation of the Fair Labor Standards Act and California labor laws. As a condition of employment, the employees were required to sign agreements that contained a “concerted action waiver” requiring the employees to pursue legal claims against Ernst & Young exclusively through arbitration, and arbitrate only as individuals and in “separate proceedings.” The panel held that an employer violates § 7 and § 8 of the National Labor Relations Act by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms of conditions of employment. The panel held that Ernst & Young interfered with the employees’ right to engage in concerted activity under the National Labor Relations Act by requiring the employees to resolve all of their legal claims in “separate proceedings.” The panel concluded that the “separate proceedings” terms in the Ernst & Young contracts could not be enforced. The panel held that the Federal Arbitration Act did not dictate a contrary result. The panel held that when an MORRIS V. ERNST & YOUNG 3 arbitration contract professes to waive a substantive federal right, the savings clause of the Federal Arbitration Act prevents the enforcement of that waiver. The panel vacated the order, and remanded to the district court to determine whether the “separate proceedings” clause was severable from the contract. The panel held that it need not reach plaintiff’s alternative arguments regarding the Norris LaGuardia Act, the Fair Labor Standards Act, or whether Ernst & Young waived its right to arbitration. Judge Ikuta dissented because she believed that the majority’s opinion violated the Federal Arbitration Act’s command to enforce arbitration agreements according to their terms, was directly contrary to Supreme Court precedent, and was on the wrong side of a circuit split. Judge Ikuta concluded that § 7 of the National Labor Relations Act did not prevent the collective action waiver at issue here, and would hold that the employee’s contract must be enforced according to its terms.
The court issued a subsequent related opinion or order on July 9, 2018.
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