Ninth Circuit joins Seventh Circuit in holding that class and collective action waivers in arbitration agreements violate the National Labor Relations Act and therefore are unenforceable.

The question is straightforward enough:  does an employer violate the National Labor Relations Act (NLRA) by requiring that employees sign an agreement to arbitrate any claims concerning their wages, hours, and terms and conditions of employment only on an individual basis, and precluding them from raising those claims in the form of a class or collective action?

The answer unfortunately is not straightforward, and has become a shifting target, varying on which forum an employer happens to find itself in.

The main players on this issue, until recently, have been the National Labor Relations Board (NLRB) and the Fifth Circuit Court of Appeals, which has jurisdiction over Texas, Louisiana, and Mississippi. The NLRB repeatedly has made clear its view on the matter, holding in dozens of cases that class and collective action waivers in individual employment arbitration agreements violate the NLRA.  Under the NLRA, employers have the option to appeal an adverse NLRB decision to the either District of Columbia Circuit Court of Appeals, or to any circuit in which the business has sufficient business operations – even if the violation alleged occurred in a different circuit.  (So, for an example, an employer faced with an adverse NLRB decision arising out of claim filed by one of its employees in Illinois – which is in the Seventh Circuit – could nonetheless appeal that decision to the Fifth Circuit if it also does business in, for example, Texas.)  As a result, employers with operations in Texas, Louisiana, or Mississippi have appealed adverse NLRB decisions invalidating their arbitration agreements containing class and collective action waivers to the Fifth Circuit, as that court has rejected the NLRB’s position not once but twice, and has consistently ruled that individual employment arbitration agreements containing class and collective action waivers are lawful and unenforceable under the Federal Arbitration Act.

Until recently, these cases followed this same pattern – with the NLRB finding the waivers unlawful and the federal appellate courts disagreeing with the NLRB – until this past May, when the Seventh Circuit sided with NLRB’s interpretation on the issue.  The Seventh Circuit explained that given the NLRA’s “intentionally broad sweep, there is no reason to think that Congress meant to exclude [protection of] collective remedies from its compass.”  The Seventh Circuit’s decision made it the first and only federal appellate court to side with position staked out by the NLRB, in contrast to decisions out of the Second, Fifth, Eighth, and Eleventh Circuits which disagreed with the NLRB.

Until now.

On August 22, a split three-judge Ninth Circuit panel issued an opinion agreeing with the Seventh Circuit and NLRB on this issue.  The plaintiffs in the Ninth Circuit’s decision are a group of employees who filed a class action lawsuit alleging that their employer improperly classified them as exempt from California and federal law requiring that they be paid overtime compensation.  Their employer sought to dismiss the lawsuit on based on arbitration agreements each of the putative class members signed in which they agreed to waive their right to bring class or collective action claims and instead to arbitrate their claims on an individual basis.  The Ninth Circuit panel, however, refused to enforce these waivers, explaining that in its view, it is a well-established principle that “employees have the right to pursue work-related legal claims together,” and this right “is the essential, substantive right established by the NLRA.”

The Ninth Circuit remanded the case to the District Court with instructions for the Court to determine whether the collective action waiver was severable from the remaining provisions of the agreement, specifically the agreement’s arbitration provision.

The Ninth Circuit’s recent decision thus widens the circuit split, making it much more likely this issue makes its way to the Supreme Court sooner, rather than later.  However, given that the Supreme Court is operating at less than a full complement, it remains to be seen whether the NLRB will appeal the Fifth Circuit’s Murphy Oil  decision and risk a split decision from the Supreme Court, which would affirm the lower court’s decision on a non-precedential basis, or whether it will sit back and wait for one of the employers in recent Seventh Circuit and Ninth Circuit decisions to take the matter to the nation’s high court.  Until then, employers in the Seventh Circuit and Ninth Circuit will be unable to avoid class and collective actions by enforcing waivers in arbitration agreements.