In many employment contracts there lies an inconspicuous provision that many employees would never notice. It is known as an ‘arbitration agreement”. This clause states that by signing the agreement, the employee gives up his or her right to sue the employer in a class action lawsuit. Instead, the employee agrees to settle differences with the employer out of court in an arbitration proceeding, without a judge or jury.
Across the country, courts have been split on whether or not they will enforce these contracts. Some courts view the clauses as violating the National Labor Relations Act (NLRA), which gives all employees the right to unionize and engage in collective bargaining. Other courts have held that these provisions do not violate the NLRA, and are enforceable against the employee.
In California, the state’s Supreme Court has already decided this issue. In a case called Iskanian v. CLS Transportation, the Supreme Court held that employers could force employees to arbitrate their claims on an individual basis after requiring workers to waive their rights to a class action claim.
While the issue may be relatively settled at the state level, a recent California federal case resulted in the U.S. Court of Appeals for the Ninth Circuit issuing a decision which directly contradicts the state’s Supreme Court.
In Morris v. Ernst & Young, several employees of Ernst & Young, a multi-billion-dollar global conglomerate, filed a class-action lawsuit in federal court in San Francisco claiming that the company failed to pay overtime in accordance with federal law. The company moved to dismiss the lawsuit, arguing that the employees’ contracts contained an arbitration clause that waived their right to file a class action lawsuit.
The employees argued that the clause violated the NLRA. The language of that statute gives employees the right to engage in “concerted activities” for “mutual aid or protection,” which the employees argued included a class action lawsuit. Two of the three judges on the panel agreed, relying on a Seventh Circuit decision which found that such clauses to be illegal.
While the decision is good news for many employees, the state of the law is still murky. The state and federal judicial systems across the country are at odds with each other about this issue, and it is likely that the United States Supreme Court will need to intervene to ultimately resolve the issue.
With contradictory decisions coming in from around the country, employees should not lose hope if they signed an arbitration agreement that includes a class action waiver. In some cases, employees may still be able to organize and file a large-scale lawsuit seeking damages for certain violations of the law. If you are unsure about whether or not you have a claim, contact an experienced California employment attorney today.