Ninth Circuit Holds Class Action Waivers in Employment Agreements Violate the National Labor Relations Act

A panel of the Ninth Circuit Court of Appeals held 2-1 that class action waivers in arbitration agreements violate the National Labor Relations Act.

In an opinion by Chief Judge Sidney Thomas, the divided panel's majority decided that the National Labor Relations Board correctly decided that class action waivers violate the National Labor Relations Act because they require employees to give up "concerted activity" - joining together in a group to address wages, hours, and other terms and conditions of employment.

The majority's rationale is that a class action waiver is a waiver of the right to act in concert - a substantive right under the NLRA. Therefore, the employee is not merely waiving the right to a class action; the employee is waiving the right to section 7 of the Act.  And that's not legal.  Because it's not legal, the arbitration provision is not enforceable, notwithstanding the Federal Arbitration Act.
The Court took special pains to emphasize that it was not holding that a class action waiver is illegal because it requires arbitration.  The opinion emphasizes that any class action waiver - even one that did not require arbitration at all - would be illegal.

So, never mind that

- Many employees who might be subject to an arbitration agreement with a class action waiver,  such as supervisors,  are not covered by the NLRA;
- Many employees who might be subject to an arbitration agreement with a class action waiver are former employees who are not engaging in protected, concerted activity to improve working conditions;
- There was no such thing as a class action in 1937 when Congress passed the NLRA;
- a class action is a procedural tool, the Supreme Court has held, not a substantive right;
- a class action is frequently asserted by one employee on behalf of a putative class, the members of which have no rights as parties and often do not even know someone filed the lawsuit;
- The Fifth, Second, and Eighth Circuits, and the California Supreme Court for that matter, have held that the NLRB got it wrong; and
- The Supreme Court has held that class action practice is incompatible with arbitration. 

None of that makes any difference. Judge Ikuta discussed some of these points and others in her dissent.

The court left open the possibility that the parties could arbitrate the class action if the employer desired.  The court also held that nothing in the decision limited arbitration of the claims asserted in the case.  The employees, however, would not be precluded from proceeding as a putative class if the district court decides to "sever" the class waiver.

So, the Supreme Court is going to have to take a look at this issue.  Until then, class action waivers are on shaky ground in the 9th Circuit.

Two things, however:

1. The California Supreme Court has held that the NLRB was wrong and the NLRA does not preclude class waivers.  So, state courts probably have to follow the California Supreme Court unless or until that Court changes its mind.

2. The Ninth Circuit held in Johnmohammadi v. Bloomingdale's, Inc. 755 F.3d 1072 (9th Cir. 2014), that an employer does not violate the NLRA when it gives employees the chance to opt-out of an arbitration agreement containing a class waiver.  Here's what the Court said:

We can quickly dismiss any notion that Bloomingdale’s coerced Johnmohammadi into waiving her right to file a class action. Bloomingdale’s did not require her to accept a class- action waiver as a condition of employment, as was true in In re D.R. Horton, Inc., 357 N.L.R.B. No. 184, 2012 WL 36274 (Jan. 3, 2012), enforcement denied in part, 737 F.3d 344 (5th Cir. 2013). Bloomingdale’s gave her the option of participating in its dispute resolution program, which would require her to arbitrate any employment-related disputes on an individual basis. As the district court found,
Johnmohammadi was fully informed about the consequences of making that election, and she did so free of any express or implied threats of termination or retaliation . . . 

Therefore, at least in the 9th Circuit, and at least for now, it is necessary to include an opt-out provision and to explain the consequences of the arbitration provision containing a class waiver.  Good drafting, therefore, can save the class waiver. 

This case is Morris v. Ernst & Young LLP and the opinion is here.