Judge Ikuta Dissents: “This decision is breathtaking in its scope and in its error . . . “
The issue decided in Morris v. Ernst & Young, No. 13-16599 (9th Cir. 8/22/16) is clearly framed by the majority and dissenting opinions, and almost certainly headed for Supreme Court review. In a majority opinion authored by Chief Judge Thomas, the panel holds an employer violates sections 7 and 8 of the NLRA by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms of conditions of employment.
Judge Thomas identifies “a core right to concerted activity” established by the NLRA. “Irrespective of the forum in which disputes are resolved, employees must be able to act in the forum together. The structure of the Ernst & Young contract prevents that.”
The majority opinion relies on Chevron deference to the NLRB’s interpretation of the NLRA, on the statutory reference in section 7 of the NLRA to the right of employees “to engage in other concerted activities”, on the savings clause in the FAA that permits agreements to arbitrate to be invalidated by generally applicable contract defenses (but not by defenses that apply only to arbitration), and on a distinction between substantive rights and procedural rights. This last distinction is particularly important, because the majority describes the right to concerted action as a substantive right that cannot be eliminated in arbitration agreements or in other agreements.
The majority nimbly distinguishes the Italian Colors case. Readers of my blog will recall that Justice Kagan, dissenting in Italian Colors, lamented that the majority opinion, authored by Justice Scalia, gave the plaintiffs a right to sue without an effective remedy, because they could not sue as a class. “Too darn bad” was her nutshell of the case. [See June 25, 2013 post.] In Morris, Judge Thomas distinguishes Italian Colors as a case in which a procedural, not a substantive right, was waived, because the antitrust statutory scheme at issue in Italian Colors did not create a right to concerted activity, only a right to sue for antitrust violations. By way of contrast, Judge Thomas views the extinction of employees’ right to concerted activity as the loss of a substantive right created by federal statute.
Judge Thomas explains that the panel’s holding does not uniquely burden arbitration:
“The contract here would face the same NLRA troubles if Ernst & Young required its employees to use only courts, or only rolls of the dice or tarot cards, to resolve workplace disputes – so long as the exclusive forum provision is coupled with a restriction on concerted activity in that forum. At its heart, this is a labor case, not an arbitration case.”
Judge Ikuta vigorously dissents, arguing that the FAA preempts federal court here from not enforcing the arbitration agreement, and that the panel’s holding is counter to recent Supreme Court case law, as well as case law of the Second, Fifth, and Eighth Circuits, concluding that “the NLRA does not invalidate collective action waivers in arbitration agreements.”
Political Footnote. Judge Ikuta, who clerked for Judge Kozinski and Justice O’Connor, was nominated for the Ninth Circuit by President George W. Bush. Judge Thomas was nominated by President Bill Clinton for a seat on the Ninth Circuit. Judge Hurwitz was nominated by President Barack Obama.