In Morris v. Ernst & Young, LLP, the U.S. Court of Appeals for the Ninth Circuit recently reviewed an arbitration agreement that required employees “as a condition of employment” “to sign agreements not to join with other employees in bringing legal claims against the company.” The employee sought to invalidate the arbitration agreement as a violation of Sections 7 and 8 of the National Labor Relations Act (NLRA). Section 7 of the NLRA grants employees the right to engage in “concerted activities” for the purpose of collective bargaining or “other mutual aid or protection.” Section 8 provides that it is an unfair labor practice for an employer to “interfere with, restrain, or coerce employees in the exercise” of Section 7 rights. The Ninth Circuit found that, although “[a]n agreement to arbitrate work-related disputes does not conflict with the NLRA,” an agreement that requires the employee to waive substantive labor rights to initiate concerted activities as a condition of employment interferes with a substantive federal right protected by the NLRA.
The Ninth Circuit joins the National Labor Relations Board (NLRB) and the U.S. Court of Appeals for the Seventh Circuit in this position. Other circuit courts, such as the Fifth Circuit and Second Circuit, however, have rejected this position. The Ninth Circuit decision expands the current circuit split and makes it more likely that the U.S. Supreme Court will address the issue.
For now, the Ninth Circuit does not appear to have extended its decision in Morris to waivers in agreements that are not conditions of employment. Indeed, the Ninth Circuit cited its 2014 decision in Johnmohammadi v. Bloomingdales, Inc., stating in that case, there was no Section 8 violation “because the employee there could have opted out of the individual dispute resolution agreement and chose not to.” The Ninth Circuit in Johnmohammadi upheld the arbitration agreement, reasoning that “[h]aving freely elected to arbitrate employment-related disputes on an individual basis, without interference from [her employer], [the employee] cannot claim that enforcement of the agreement violates” the NLRA. Although the NLRB would disagree with this conclusion, its opinions are not binding on the courts.
In the Ninth Circuit, it is possible that some class and collective action waivers may not be enforceable based on this decision. Employers should ensure that their arbitration clauses are carefully crafted to comply with both state and federal laws as well as stay aware of new legislation or cases limiting the use of arbitration clauses.
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