The U.S. Court of Appeals for the Ninth Circuit announced this week that it agrees with the National Labor Relations Board that individual arbitration waiver agreements, which prevent employees from filing or participating in class or collective actions against their employers, are unenforceable under the National Labor Relations Act (NLRA) and the Federal Arbitration Act (FAA). The decision adds to the growing and sharp divide among circuit courts and makes the issue increasingly likely for Supreme Court review.

The Ninth Circuit's decision, Morris v. Ernst & Young, LLP, reviewed a waiver the accounting firm required its employees to sign agreeing to pursue legal claims against Ernst & Young only through arbitration and only as individuals in "separate proceedings." The court adopted the NLRB's decision in D.R. Horton, Inc., finding such an agreement is precluded by the protections of Section 7 of the NLRA of employee rights to engage in "concerted activities, including the ability to pursue joint, collective, or class action legal proceedings." The court also agreed that the FAA, a statute that requires arbitration agreements to be enforced according to their terms, did not compel a different result because the agreement falls within the FAA's "savings clause," which prevents enforcement of illegal arbitration agreements.

A rigorous dissent soundly criticized the majority opinion as "breathtaking in its scope and its error," finding that it directly contravened controlling U.S. Supreme Court precedent and joined the "wrong side" of the circuit split. The dissent emphasized that under the Supreme Court’s decision in CompuCredit Corp. v. Greenwood, the party challenging the arbitration agreement has the burden of showing that Congress "expressly intended to preclude a waiver of the judicial forum." The dissent concluded that nothing in the NLRA "comes remotely close to the examples of contrary congressional commands the Supreme Court identified in CompuCredit."

With the opinion, the Ninth Circuit panel joins the Seventh Circuit as the two that have found in favor of the Board’s approach toward employee arbitration waiver agreements. On the other side of the debate stands the Fifth Circuit which, along with the Second and Eighth Circuits, overturned the Board’s D.R. Horton decision. Cases raising the same issue are pending before the Second, Third, Fourth, Fifth, Sixth, 11th, and D.C. Circuits. Until the U.S. Supreme Court resolves the current circuit split, the NLRB's aggressive enforcement efforts against these agreements will certainly continue.

Ballard Spahr's Labor and Employment Group routinely assists employers in drafting, reviewing, and defending the enforceability of employment and arbitration agreements. The firm's Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements.


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