CLIENT ALERT: Ninth Circuit Holds That “Concerted Action Waivers” In Arbitration Agreements Are Unenforceable






On August 22, 2016, a three-judge panel for the United States Court of Appeals for the Ninth Circuit issued its opinion in Morris v. Ernst & Young.  By a 2-1 majority, the panel held that arbitration agreements that require employees to arbitrate disputes only as individuals and in “separate proceedings” are unenforceable.  The decision exacerbates an existing circuit split on this issue, which will likely end up before the United States Supreme Court for final resolution.

The Morris Decision

Stephen Morris and Kelly McDaniel, the plaintiffs in Morris, were both required to sign arbitration agreements as a condition of employment with Ernst & Young.  The agreements required employees to pursue any work-related legal claims exclusively through arbitration (rather than in court).  The agreements also required employees to arbitrate only as individuals and in “separate proceedings” from other employees.  In combination, these two provisions operated to prevent employees from bringing any sort of concerted legal claims – whether in court or in arbitration – against Ernst & Young.


The Morris majority found that, under the National Labor Relations Act (NLRA), all employees have the right to pursue work-related legal claims, and to do so together, in a concerted manner.  Because the Ernst & Young agreement prevented employees from pursing concerted work-related legal claims, the majority held that it impermissibly interfered with that right.  The majority further found that the Federal Arbitration Act (FAA) did not compel a different result, since the FAA does not require enforcement of contract terms that waive substantive federal rights, such as the rights protected by the NLRA.  Finally, the majority stated that it was not holding that arbitration may not be used in workplace disputes.  Rather, the majority wrote, it was holding that when an agreement requires arbitration as the exclusive forum for resolving employee disputes, the agreement may not also restrict concerted activity in that forum.


Impact on California Employers

Many California employers currently require their employees to sign arbitration agreements with class action waivers as a condition of employment.  The Morris decision is currently binding on California employers, and will likely be used by plaintiffs’ attorneys to attack the enforceability of class-action waivers.  Nonetheless, it appears likely that Ernst & Young will appeal the Morris decision, and that the United States Supreme Court may take this issue up for review.  Until the appeal period in Morris is exhausted, employers are advised to continue using arbitration agreements with class action waivers.    


Our office is closely monitoring this issue and will keep its clients apprised of any developments.  For more information, please contact Rafael Gonzalez or Brian Daly of Mullen & Henzell’s Employment and Labor group.

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