Stephen Morris v. Ernst & Young
834 F.3d 975
| 9th Cir. | 2016Background
- Plaintiffs Stephen Morris and Kelly McDaniel, employees of Ernst & Young, signed mandatory employment agreements requiring arbitration of workplace disputes "exclusively" and in "separate proceedings," forbidding collective, class, or joint legal claims in any forum.
- Morris filed a putative class and collective action alleging FLSA and California wage-and-hour violations; the case was transferred to the Northern District of California.
- Ernst & Young moved to compel arbitration under the agreements; the district court ordered individual arbitration and dismissed the case.
- Plaintiffs appealed, arguing the "separate proceedings" (concerted action waiver) violates the NLRA, the Norris-LaGuardia Act, and the FLSA; they relied on NLRB decisions (e.g., D.R. Horton) holding such waivers unlawful under the NLRA.
- The Ninth Circuit reviewed de novo and focused on whether the waiver unlawfully interfered with NLRA § 7 rights to "concerted activities" and whether the FAA compelled enforcement despite that conflict.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an employer may require employees to waive the right to pursue concerted work-related legal claims (class/collective) in any forum | Morris: § 7 of the NLRA protects the substantive right to pursue concerted legal claims; a clause forcing separate individual proceedings unlawfully interferes with § 7 and is an unfair labor practice under § 8 | Ernst & Young: The arbitration agreement is enforceable under the FAA; § 7 and § 8 contain no explicit congressional command precluding individual arbitration or class-waivers | Held: The "separate proceedings" clause violates the NLRA because it interferes with § 7 concerted-activity rights and cannot be enforced |
| Whether the NLRB's interpretation (that concerted-action waivers are unlawful) merits deference | Morris: The Board reasonably interprets NLRA § 7/§ 8 to cover concerted litigation and to forbid contractual elimination of that right | Ernst & Young: Board's position conflicts with FAA policy and Supreme Court precedent favoring enforcement of arbitration agreements | Held: Court accepts Board's substantive view as consistent with the NLRA's unambiguous text; no Chevron step two was necessary |
| Whether the FAA preempts or compels enforcement of the arbitration clause despite NLRA conflict | Morris: The FAA's saving clause preserves generally applicable defenses (illegality) — it does not protect contract terms that waive substantive federal rights | Ernst & Young: FAA requires enforcement absent a clear congressional command to the contrary; Supreme Court cases uphold class-waivers in arbitration | Held: FAA does not mandate enforcement of arbitration terms that prospectively waive substantive rights protected by another federal statute (NLRA § 7) |
| Remedy — whether arbitration must be compelled or clause severed | Morris: The illegal "separate proceedings" term is unenforceable; court should vacate compelled-arbitration order and consider severability | Ernst & Young: Arbitration should be enforced as written or the FAA requires enforcement of the clause | Held: Reversed the district court's order compelling individual arbitration; remanded to determine severability of the illegal clause (court took no position on ultimate arbitration requirement) |
Key Cases Cited
- NLRB v. City Disposal Sys. Inc., 465 U.S. 822 (Board interpretations of NLRA deserve deference)
- Eastex, Inc. v. NLRB, 437 U.S. 556 (§ 7 protects concerted use of administrative and judicial forums)
- NLRB v. J. Weingarten, Inc., 420 U.S. 251 (recognizing § 7 protections in labor context)
- National Licorice Co. v. NLRB, 309 U.S. 350 (contracts cannot be used to evade NLRA protections)
- J.I. Case Co. v. NLRB, 321 U.S. 332 (private contracts conflicting with NLRA must yield)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (FAA policy favors enforcement of arbitration agreements; class-waiver analysis)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (arbitration does not forgo substantive statutory rights)
- Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (distinguishing substantive rights from procedural forum choices)
- Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (arbitrator cannot create class arbitration absent contractual basis)