Arbitration Agreements with Class Action Waivers? California Employers Can Get Them and Still Lose Them

The Ninth Circuit Court of Appeals ruled this week that a class action waiver in an Ernst & Young arbitration agreement violated the National Labor Relations Act. The action stems from the financial company’s requirement that employees sign a standard agreement giving up their right to file class actions based on employment or related claims such as wage disputes. Two former employees are seeking to represent a class of uncertified administrative employees, claiming back pay for unpaid overtime and breaks during audits.

The Court dismissed the CPA firm’s argument that the Federal Arbitration Act controls and preempts the NLRA by finding there is a “substantive federal right” to pursue concerted (class based) work-related legal claims.

The decision gives credence to the National Labor Relations Board view that class waivers are Illegal. A California district court had originally dismissed the class suit, upholding the arbitration agreement but the Ninth Circuit reversed the lower court judge.

The case should remind employers in California that, even if a state court might uphold a class waiver in an arbitration agreement, federal courts are free to hold otherwise.

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