Solo Arbitration Requirement Violates Right to Concerted Activity

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By Jon Steingart

Aug. 22 — Ernst & Young LLP’s requirement that employee disputes be resolved in arbitration on an individual basis rather than through solo or class litigation violates federal labor law, a federal appeals court ruled ( Morris v. Ernst & Young, LLP , 9th Cir., No. 13-16599, 8/22/16 ).

The requirement violated accountants’ right to engage in concerted activity under the National Labor Relations Act, the U.S. Court of Appeals for the Ninth Circuit ruled Aug. 22, adopting a position advanced by the National Labor Relations Board.

The ruling sharpens a split among the federal appeals courts that have considered the question, a management-side attorney and an employment law professor said. It means the circuits are divided 2-2, Bill Emanuel, a shareholder in Littler Mendelson P.C.'s Culver City, Calif., office, told Bloomberg BNA Aug. 22.

The Ninth Circuit joined the Seventh in adopting the NLRB’s position, putting those circuits at odds with the Fifth and Eighth circuits, said Professor Charlotte Garden of the Seattle University School of Law. In addition, “the Second and Eleventh, at minimum, have rejected the NLRB rule in drive-by fashion,” she told Bloomberg BNA.

Supreme Court May Be Asked to Weigh In

The losing side in the Seventh Circuit case, Epic Systems Corp., filed a notice that it plans to appeal to the U.S. Supreme Court. “I think the court will take it next term,” Max Folkenflik, an attorney for the EY accountants, told Bloomberg BNA Aug. 22. “We might have a decision by June,” he said.

Stephen Morris and Kelly McDaniel’s lawsuit alleged Ernst & Young deprived them of overtime and minimum wage by misclassifying them as independent contractors rather than employees, Judge Sidney R. Thomas wrote for the Ninth Circuit. They appealed a lower court’s order that kicked their claims out of court by enforcing the arbitration agreement.

The “concerted activity waivers” the company required as a condition of employment violated “a well-established principle: employees have the right to pursue work-related legal claims together,” Thomas wrote in the opinion, which was joined by Judge Andrew D. Hurwitz.

In a dissent, Judge Sandra S. Ikuta said the majority opinion departs from Supreme Court precedent that shows the NLRA’s right to concerted activity must be “harmonized” with the national policy favoring arbitration embodied in the Federal Arbitration Act. A collective action under the FLSA is a “legal procedural mechanism for resolving disputes.”

Statutory Interpretation Dictates Outcome

The Ninth Circuit’s ruling was guided by Supreme Court precedent that holds an agency’s interpretation of a statute it is charged with enforcing is entitled to deference, Thomas said. This is known as Chevron deference because it flows from a case in which Chevron U.S.A. was a litigant.

Chevron deference is a two-step process in which the court first asks whether the law at issue is ambiguous. “The Morris opinion very clearly says Section 7 of the NLRA bars these contracts,” Folkenflik said.

“The intent of Congress is clear,” Thomas said. The NLRA “protects a range of concerted employee activity,” he said. Filing a class or collective action is a concerted activity, he said.

An EY spokeswoman declined to comment Aug. 22.

Folkenflik is with Folkenflik & McGerity in New York. Tim Hoffman of Tim Hoffman Law and Ross L. Libenson of Libenson Law, both in Oakland, Calif., also represented the accountants. Rex Heinke of Akin Gump Strauss Hauer & Feld in Los Angeles argued the case for EY, which was also represented by Akin Gump attorneys Gregory Knopp in Los Angeles and Daniel Nash in Washington, D.C.

To contact the reporter on this story: Jon Steingart in Washington at jsteingart@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

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