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Class Action Waivers Unenforceable in Employment Disputes, Says Ninth Circuit

Over the last 5 to 10 years, many companies have started using arbitration agreements with a class action waiver to preclude employees from joining together in lawsuits for unpaid hours, wages or other terms of employment. Employers often utilize arbitration agreements with class action waivers because arbitrations are not held in court, but rather in a private setting, and they force employees to bring their claims on an individual basis in order to reduce the costs and exposure inherent in class action lawsuits.

Employee groups contend that arbitration agreements with a class action waiver allow employers to engage in non-compliant pay practices without fear of consequence because employees are less likely to bring smaller unpaid wage cases individually in arbitration. And individual cases in arbitration for one employee’s unpaid wages are unlikely to cause the employer to modify non-compliant practices, whereas a class action (or the risk of a class action) often causes employers to ensure that its pay practices are compliant with state and federal laws.

The battle over arbitration agreements, especially those with a class action waiver, have been brewing in many courts across the nation. Today, 9th U.S. Circuit Court of Appeals shot down class action waivers in employment disputes in Morris v. Ernst & Young, 9th U.S. Circuit Court of Appeals, No. 13-16599. Chief Judge Sidney Thomas writing for the 9th Circuit ruled the ability for employees to act in concert with one another to bring class or collective actions is a substantive right that cannot be waived under the National Labor Relations Act ("NLRA").

In his ruling, Judge Thomas specifically stated that it is "well-established that the NLRA establishes the right of employees to act in concert," and further stated that "[c]oncerted action is the basic tenet of federal labor policy, and has formed the core of every significant federal labor statute leading up to the NLRA."

The 9th Circuit’s ruling is significant, as it fundamentally reinforces the purpose of the NLRA, enacted in 1935, to give employees the right to join in concerted activity, whereby their collective might can be used to enforce their rights under various labor laws and assure fair treatment for all workers.

The 9th Circuit’s decision to label class action waivers unenforceable in employment disputes is directly in line with that of the 7th U.S. Circuit Court of Appeals. However, the decisions of the 7th and 9th Circuit are in conflict with that of two other federal appellate courts. As such, it is likely that the United States Supreme Court may take this matter under review to clarify this split in the Circuits and to rule on the enforceability of class action waivers.

August 22, 2016

Brian J. Mankin, Esq.

Peter Carlson, Esq.

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