SAN FRANCISCO – The California 9th Circuit Court of Appeals recently ruled that employers can no longer enforce class-action waivers in arbitration agreements signed by their employees.

The court ruled 2-14 on Aug. 22 in the case Morris v. Ernst & Young in the favor of Stephen Young, a former employee of Ernest & Young, who filed a class-action lawsuit regarding allegedly unpaid overtime. This decision became one of many decisions from California courts leading to a split circuit.

Rafael Nendel-Flores with the law firm Ogletree Deakins frequently represents employers in similar cases and wrote an opinion piece on the ruling of this case.

“The underlining facts of the case aren’t critical to what was going on with this decision,” Nendel-Flores told the Northern California Record.

The 9th Circuit Court looked to a similar case, Lewis v. Epic Systems, which was decided in the 7th Circuit Court of Appeals. In this case, the court ruled employers cannot require employees to be held to arbitration agreements because those agreements violate Section 7 of the National Labor Relations Act (NLRA), which states: “Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

Nendel-Flores believes the court would have ruled differently if employers allowed their employees to opt-out of the arbitration agreements rather than requiring them to sign.

However, the Supreme Court of California ruled in favor of employers in the case Iskanian v. CLS Transportation meaning although the 9th Circuit made its decision, California state courts do not have to follow this decision.

With the state courts deciding on the side of employers and federal courts filing on the side of employees, plaintiffs on either side are attempting to strategically shop the court that will hear their case.

“What will start happening is that there will be some court shopping,” Nendel-Flores said. “Most of the time employers would rather have their cases heard in the federal court but now, they’d rather be in the state court.”

The opposite is true of employees hoping to have their cases heard by the federal court.

The split circuit has caused a limbo for cases involving arbitration agreements. Nendel-Flores predicts the U.S. Supreme Court will weigh in within the next year.

“I suspect that there’s going to be a closely divided decision by the Supreme Court,” Nendel-Flores said.

If the court were to expedite this case, there could likely be a 4-4 split because of the vacancy on the court. Nendel-Flores believes the outcome of the presidential election will decide who will fill the vacancy and how the court would rule on this subject.

“The big benefit of arbitration agreements to employers is that employees can only bring individual cases,” Nendel-Flores said.  “If class-action waivers are deemed unlawful, employers will reevaluate the value of having arbitration agreements.”

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