Ninth Circuit Adopts the NLRB’s Decisions in D.R. Horton and Murphy Oil and Invalidates Class Action Waiver in an Employment Arbitration Agreement

Today, the Ninth Circuit issued a ruling in Morris v. Ernst & Young LLP in which it adopted the National Labor Relations Board’s (NLRB) decisions in D.R. Horton, 357 NLRB No. 184 (2012) and Murphy Oil USA, Inc., 361 NLRB No. 72 (2014) and invalidated a class action waiver in an employment arbitration agreement.  The case involved an appeal of a district court order compelling individual arbitration in a putative class action alleging unpaid overtime.  In a 2-1 decision, the Ninth Circuit panel found that a class action waiver in an employment arbitration agreement “violates the NLRA and cannot be enforced” because Section 7 of the NLRA provides a substantive federal right to pursue legal claims collectively.  In reaching its conclusion, the majority emphasized that the NLRA does not mandate the forum in which individuals have right to pursue claims collectively, but a waiver that precludes the pursuit of collective claims in any forum violates the NLRA.  The very pointed dissent would have affirmed the order compelling arbitration, finding that section 7 of the NLRA does not prevent the collective action waiver in this case.

The Ninth Circuit now joins the Seventh Circuit as the only two circuits to approve the NLRB’s decisions in D.R. Horton and Murphy Oil.  The Second, Fifth, Eighth and Eleventh Circuits have previously rejected D.R. Horton and/or Murphy Oil (as has the California Supreme Court in Iskanian v. CLA Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014)) and have held that class action waivers in employment arbitration agreements are enforceable.  The Morris decision widens a circuit split that is likely to be reviewed by the Supreme Court, presumably after Justice Scalia’s seat is filled.  In the meantime, the Morris decision increases the likelihood that employers who have arbitration agreements containing class action waivers will be exposed to the possibility of class or collective action lawsuits in court.  This ruling should not impact the validity of class action waivers in arbitration agreements outside of the employment context.

A copy of the opinion can be found here.

Keesal, Young & Logan Employment Group

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