Less than two weeks after the Second Circuit approved a class action waiver in Sutherland v. Ernst & Young LLP (Aug. 9, 2013), the Ninth Circuit too has ruled that an employer’s arbitration agreement with a class action waiver will be enforced. Richards v. Ernst & Young LLP, No. 11-17530 (9th Cir. Aug. 21, 2013). In doing so, the Ninth Circuit, as did the Second Circuit, applied the U.S. Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), and rejected the argument that the NLRB’s decision in D.R. Horton invalidates class action waivers. Employers thus can be increasingly confident that they may be able to minimize their risk of class action employment litigation if they adopt a properly constructed arbitration program.

Michelle Richards filed a wage-hour class action suit against Ernst & Young (“E&Y”) in 2008. (Her case was consolidated for purposes of class certification with two other cases filed earlier.) While Richards was subject to an arbitration program with a class action waiver, E&Y did not seek to compel arbitration until after the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). E&Y took the position that any earlier effort to compel arbitration would have been futile, since under California state law, class action waivers were unenforceable. Richards argued that E&Y’s delay prevented it from enforcing the arbitration agreement and class action waiver, and the District Court agreed.

On appeal, the Ninth Circuit reversed. The court noted that waivers of contractual rights, including the right to arbitrate, were disfavored, and found that while there had been litigation on the merits prior to E&Y’s arbitration motion, that did not prejudice Richards or prevent enforcing the arbitration agreement.

The Ninth Circuit then turned to Richard’s substantive argument for rejecting the arbitration agreement and class action waiver. Specifically, Richards argued that the Court should rely on the NLRB’s decision in D.R. Horton, 357 N.L.R.B. No. 184, 2012 WL 36274 (2012), which states that class action waivers are categorically unenforceable under the National Labor Relations Act. The Ninth Circuit declined to do so, joining the Eighth Circuit and the “overwhelming majority of the district courts” in rejecting D.R. Horton as inconsistent with the FAA’s strong pro-arbitration policy. The Ninth Circuit then noted that this pro-arbitration policy recently had been reiterated by the Supreme Court in American Express.

With this decision, there now are two Courts of Appeals applying American Express to uphold class action waivers in an arbitration agreement in the employment setting, and a virtually uniform slate of courts rejecting D.R. Horton. Employers that have an arbitration program in place may want to consider adding a class action waiver, or, if a class action waiver is included, having that waiver reviewed for proper construction. If employers do not have arbitration programs and are concerned with the exposure presented by possible employment class actions, serious consideration should be given to an arbitration program.

The Labor and Employment group at Schiff Hardin is able to assist and has a wealth of experience implementing, reviewing and managing arbitration programs and class action waivers.

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