Ernst & Young, LLP, a global professional services firm, made an effort to stem the tide of challenging and expensive class action litigation by including in their employment agreements a clause by which employees waive their rights to file work-related claims as a collective group. The contracts require employees to arbitrate claims individually. Ernst & Young followed the actions of a number of companies large and small which are increasingly requiring employees to sign these waivers. Not only do such waivers purport to save employers a lot of money which would be used to defend class actions, they may very well dissuade employees from filing individual claims which might be costly and difficult to pursue on their own, especially if relatively small amounts of money are at issue.
In ruling this week, the 9th Circuit Court of Appeals became the second federal appellate court to bolster the NLRB’s position that such waivers are unenforceable and violate the National Labor Relations Act (the “Act’). The Act guarantees employees the right to engage in concerted activity which includes filing legal action against an employer as a group. It is noteworthy that two Circuit Courts have gone the other way, ruling that such waivers are indeed enforceable. This leads to the conclusion that this issue will end up before the United States Supreme Court for final resolution.
The case before the 9th circuit was brought by two former Ernst & Young employees who alleged on behalf of the purported class that the company failed to pay overtime in accordance with federal and state law. The court did not rule that arbitration clauses in and of themselves were unenforceable as to individual claims, only that the employees were entitled to pursue a class action on behalf of themselves and other similarly situated employees.
The case is Morris v. Ernst& Young, 9th U.S. Circuit Court of Appeals, No. 12-16599.