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Mandatory Class Action Waivers in Arbitration Agreements Are Now Prohibited in California

On Behalf of | Nov 14, 2016 | Labor And Employment Law |

In a recent decision, which affects all employers in California, the Federal Ninth Circuit Court of Appeals in the case of Morris v. Ernst & Young, LLP, — F.3d —- (2016) recently outlawed the use of mandatory class action waivers in arbitration agreements in California.

The practical effect of this decision is that, at least for now, California employers can no longer require employees to sign an arbitration agreement giving up their right to participate in a class action lawsuit as a condition of employment. Burkhalter Kessler Clement & George LLP, along with many other employment defense law firms in Southern California, has long since advocated employers’ use of such arbitration agreements, including class action waiver clauses, as a practical way of protecting themselves against rampant employment class action lawsuits filed by contingency plaintiffs’ employment lawyers, for claims ranging from wage and hour violations to misclassification of employees as independent contractors.

In the Ernst & Young case, the accounting firm required all new employees to sign an arbitration agreement prohibiting them from joining with other employees in bringing legal claims against the company, with the result that employees could not initiate concerted legal claims against the company in any forum, they were required to bring only their own individual claims in an arbitration proceeding.

However, not deterred by the arbitration agreement he had signed, the plaintiff in the Ernst & Young case brought a class action lawsuit against his employer alleging misclassification under the Fair Labor Standards Act and challenging the validity of the very class action waiver which purported to prohibit him from filing the lawsuit in the first place. The Ninth Circuit held in Mr. Morris’ favor and invalidated the class action waiver on the basis that it violated the National Labor Relations Act (the “Act”) by impermissibly interfering with the right of employees to engage in “concerted activity”, as protected by the Act.

As a result of this decision, mandatory waivers purporting to restrict the right of California employees to bring class actions are no longer enforceable. Whilst the Court in Ernst & Young suggested that non-mandatory class action waiver provisions may still be a potential option, Burkhalter Kessler Clement & George LLP believes that, as a practical matter, this option is highly unlikely to be useful to California employers. Nevertheless, Burkhalter Kessler Clement & George LLP continues to recommend that employers have their employees sign arbitration agreements, since arbitration remains a much more favorable forum for employers to resolve employment disputes than trial by jury in a California court. Arbitrators tend to be far more objective, more apt to apply the law and far less likely to be swayed by emotions in employment matters than jurors – many of whom may themselves have been wronged by former employers.

Ernst & Young has appealed the Ninth Circuit Court of Appeals’ adverse ruling to the United States Supreme Court, which is a discretionary appeal, the vast majority of which are rejected. However, there is a possibility that the United States Supreme Court may accept the case, because the Ninth Circuit’s ruling is in conflict with rulings on the same issue by two other Federal appeals courts, an outcome which the Supreme Court disfavors. Burkhalter Kessler Clement & George LLP will monitor the progress of this appeal and provide an update as and when appropriate.

Please contact Greg Clement at [email protected] if you would like your company’s current arbitration policy reviewed, in light of this development, or have questions about this or any other aspect of employment law.

The National Labor Relations Act is a Federal statute enacted in 1935 to protect the rights of employees and employers and to curtail certain private sector labor and management practices.



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