Ninth Circuit: Mandatory Class Action Waivers in Arbitration Agreements Are “Illegal”

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 Employers with Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Oregon and Washington Employees

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August 22, 2016

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The Ninth Circuit has stated that use of mandatory class action waivers in arbitration agreements are prohibited, becoming the second federal circuit court to strike down such agreements.  In short, employers in the states covered by the Ninth Circuit cannot require employees to sign an agreement giving up their right to class action/collective claims as a condition of employment.

This important decision arose from Morris v. Ernst & Young. Like many other companies, Ernst & Young required all new hires to sign an arbitration agreement containing language that waives the employee’s right to bring a collective action. Regardless, the plaintiff eventually brought a class action claim against Ernst & Young for alleged misclassification under the Fair Labor Standards Act.  The Ninth Circuit struck down the waiver provision, stating that such a waiver interfered with the right of the employees to engage in concerted activity protected by Section 7 of the National Labor Relations Act (“NLRA”) and was therefore a violation of Section 8 of the NLRA.

As a result, applicable employers should immediately review their employment agreements with labor counsel.  Multistate employers should also review their practices for worksites and employees based in the applicable states.  Although it stated that mandatory class action waivers are not permitted, the Morris court indicated that non-mandatory class action waiver provisions may be a potential option.  However, this issue is continuously evolving and legal review is strongly recommended.

To date, the Ninth and Seventh Circuits have adopted this position on class action waivers; however, the Second, Fifth and Eighth Circuits have rejected this stance.  Due to the split in opinion, it is possible the issue will eventually be reviewed by the United States Supreme Court.  ManagEase will continue to report on updates in this continually developing area.

Action Items

  1. Immediately review employment and arbitration agreements containing class action waivers with labor counsel and revise, if necessary.
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2016 ManagEase, Incorporated.

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