A condition of employment by accounting giant Ernst & Young that workers agree to mandatory arbitration of disputes and give up a right to class actions went too far for a federal appeals court, which said the terms violate federal labor law.
In a significant worker victory, the 9th U.S. Circuit Court of Appeals ruled Monday that an employer violates the National Labor Relations Act by requiring employees to sign an agreement barring them from bringing – in any forum – a “concerted legal claim regarding wages, hours and terms and conditions of employment.
The panel divided 2-1 on the decision. The ruling also creates a split with other circuits, including the Chicago-based 7th Circuit, New York’s 2nd Circuit and the 8th Circuit in St. Louis.
In dissent, Judge Sandra Ikuta said the company contract is permitted under the Federal Arbitration Act.
She called the majority holding “breathtaking in its scope and in its error.”
Two Ernst & Young employees, Stephen Morris and Kelly McDaniel, brought a class action against the company despite signing agreements that they would not join with others to bring legal claims against the company and would pursue claims only through arbitration.
U.S. District Judge Ronald Whyte in San Jose ordered the pair to arbitrate the dispute and dismissed the class action. Morris and McDaniel appealed.
Although employers in recent years have increasingly added class action waivers and arbitration demands to employment contracts, the appeals court said there is a well-established principle that employees have a right to pursue work-related legal claims together.
“Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in ‘separate proceedings,’” Judge Sidney Thomas wrote for the majority.
The National Labor Relations Board (NLRB) has made it an unfair labor practice for an employer to interfere with, restrain or coerce employees in the exercise of the rights guaranteed in labor law, Thomas said. That guarantee includes employee efforts to seek to improve working conditions.
The majority said the Ernst & Young contract mandating “separate proceedings” rather than class actions, to resolve disputes interferes with a substantive federal right protected by the NLRA.
Ikuta countered that the NLRA does not prevent waiver of collection action and she would have allowed the company contract term to stand.
Case: Morris v. Ernst & Young, No. 13-16599