In 2011, the U.S. Supreme Court had ruled in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), that arbitration agreements with class waivers were permissible. Then, just after employers thought it safe to create arbitration agreements requiring employees to waive class actions, the National Labor Relations Board ("NLRB") threw a fly in the ointment, ruling in a case called D.R. Horton that arbitration agreements with class action waivers create an unfair labor practice because they restrict employees from engaging in protected concerted activity. D.R. Horton, 357 NLRB 184 (Jan 3, 2012). This NLRB ruling applied equally to unionized workplaces and those without unions. Until now, employers under the Ninth Circuit's jurisdiction have not had much guidance on handling the apparent conflict between the Supreme Court's embrace of class action waivers in AT&T Mobility and the NLRB's rejection of them in D.R. Horton.
On August 21, 2013, however, the Ninth Circuit issued Richards v. Ernst & Young, LLP, No. 11‑17530. In Richards, wage and hour cases had been consolidated and after some discovery the defendant moved to compel arbitration. The lower court had ruled that Ernst & Young had engaged in too much litigation to have its arbitration agreement enforced. The Ninth Circuit overturned that ruling and required arbitration.
More importantly, the employee argued that the arbitration agreement was invalid under D.R. Horton. The Ninth Circuit stated it would not rule on the issue because the employee's argument had not been raised in the lower court. Nevertheless, the Ninth Circuit went on to opine that D.R. Horton could not be reconciled with the Supreme Court's arbitration decision in AT&T Mobility. Thus, although not ruling on the issue directly, the Ninth Circuit plainly viewed the NLRB as having overstepped its authority. Although perhaps not a final word, the Richards decision should give some comfort that NLRB attempts to challenge class action waivers in arbitration provisions will not be successful in the Ninth Circuit.
Impact on Employers
Employers that considered using class action waivers but did not want the risk of NLRB action may want to reconsider their use. Although the Ninth Circuit did not directly rule on the issue, the Ninth Circuit does not appear to be friendly territory for the NLRB to challenge a class action waiver.
This case serves as a reminder of an employer's continued choice to avoid class actions through arbitration agreements. Employers should think carefully about whether such agreements are desirable. There can be downsides to arbitration, in particular the restrictions on ability to appeal. And shunting possible wage and hour claims to arbitration could result in a stream of individual claims that might be handled more efficiently in a class action.
Every employer should assess whether an arbitration agreement is appropriate for some part of its workforce. And further, employers should assess the scope of an arbitration agreement—an employer could require arbitration of some claims but prefer others proceed in court. It is easy to think that one size fits all, but cultural and practical considerations underlie the decision about whether an employer should require arbitration and to what degree. Richards reminds us all, though, that unless Congress amends the Federal Arbitration Act, arbitration, including arbitration that requires waiver of a right to bring a class action, remains a viable option.