Misclassification/FLSA/CA Labor Code/NLRA

Morris v. Ernst & Young (9th Cir. 13-16599 8/22/16)

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 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.

http://cdn.ca9.uscourts.gov/datastore/opinions/2016/08/22/13-16599.pdf