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Morris v. Ernst & Young, LLP

United States Court of Appeals, Ninth Circuit

August 22, 2016

Stephen Morris; Kelly McDaniel, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,
v.
Ernst & Young, LLP; Ernst & Young U.S., LLP, Defendants-Appellees.

          Argued and Submitted November 17, 2015 San Francisco, California

         Appeal from the United States District Court for the Northern District of California Ronald M. Whyte, Senior District Judge, Presiding D.C. No. 5:12-cv-04964-RMW

          Max Folkenflik (argued), Folkenflik & McGerity, New York, New York; H. Tim Hoffman, H. Tim Hoffman Law, Oakland, California; Ross L. Libenson, Libenson Law, Oakland, California; for Plaintiffs-Appellants.

          Rex S. Heinke (argued) and Gregory W. Knopp, Akin Gump Strauss Hauer & Feld, Los Angeles, California; Daniel L. Nash, Akin Gump Strauss Hauer & Feld, Washington, D.C.; for Defendants-Appellees.

          Richard F. Griffin, Jr., General Counsel; Jennifer Abruzzo, Deputy General Counsel; John H. Ferguson, Associate General Counsel; Linda Dreeben, Nancy E. Kessler Platt and Meredith L. Jason, Deputy Assistant General Counsel; Kira Dellinger Vol, Supervisory Attorney; Paul L. Thomas, Attorney; National Labor Relations Board, Washington, D.C.; for Amicus Curiae National Labor Relations Board.

          Before: Sidney R. Thomas, Chief Judge and Sandra S. Ikuta and Andrew D. Hurwitz, Circuit Judges.

         Dissent by Judge Ikuta

         SUMMARY[*]

         Labor Law

         The panel vacated the district court's order compelling individual arbitration in an employees' class action alleging that Ernst & Young misclassified employees to deny overtime wages in violation of the Fair Labor Standards Act and California labor laws.

         As a condition of employment, the employees were required to sign agreements that contained a "concerted action waiver" requiring the employees to pursue legal claims against Ernst & Young exclusively through arbitration, and arbitrate only as individuals and in "separate proceedings."

         The panel held that an employer violates § 7 and § 8 of the National Labor Relations Act 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. The panel held that Ernst & Young interfered with the employees' right to engage in concerted activity under the National Labor Relations Act by requiring the employees to resolve all of their legal claims in "separate proceedings." The panel concluded that the "separate proceedings" terms in the Ernst & Young contracts could not be enforced.

         The panel held that the Federal Arbitration Act did not dictate a contrary result. The panel held that when an arbitration contract professes to waive a substantive federal right, the savings clause of the Federal Arbitration Act prevents the enforcement of that waiver.

         The panel vacated the order, and remanded to the district court to determine whether the "separate proceedings" clause was severable from the contract. The panel held that it need not reach plaintiff's alternative arguments regarding the Norris LaGuardia Act, the Fair Labor Standards Act, or whether Ernst & Young waived its right to arbitration.

         Judge Ikuta dissented because she believed that the majority's opinion violated the Federal Arbitration Act's command to enforce arbitration agreements according to their terms, was directly contrary to Supreme Court precedent, and was on the wrong side of a circuit split. Judge Ikuta concluded that § 7 of the National Labor Relations Act did not prevent the collective action waiver at issue here, and would hold that the employee's contract must be enforced according to its terms.

          OPINION

          THOMAS, Chief Judge:

         In this case, we consider whether an employer violates the National Labor Relations Act by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms and conditions of employment. We conclude that it does, and vacate the order of the district court compelling individual arbitration.

         I

         Stephen Morris and Kelly McDaniel worked for the accounting firm Ernst & Young. As a condition of employment, Morris and McDaniel were required to sign agreements not to join with other employees in bringing legal claims against the company. This "concerted action waiver" required employees to (1) pursue legal claims against Ernst & Young exclusively through arbitration and (2) arbitrate only as individuals and in "separate proceedings." The effect of the two provisions is that employees could not initiate concerted legal claims against the company in any forum-in court, in arbitration proceedings, or elsewhere.

         Nonetheless, Morris brought a class and collective action against Ernst & Young in federal court in New York, which McDaniel later joined. According to the complaint, Ernst & Young misclassified Morris and similarly situated employees. Morris alleged that the firm relied on the misclassification to deny overtime wages in violation of the Fair Labor Standards Act ("FLSA"), 29 U.S.C.A. § 201 et seq., and California labor laws.

         The case was eventually transferred to the Northern District of California. There, Ernst & Young moved to compel arbitration pursuant to the agreements signed by Morris and McDaniel. The court ordered individual arbitration and dismissed the case. This timely appeal followed.

         Morris and McDaniel argue that their agreements with the company violate federal labor laws and cannot be enforced. They claim that the "separate proceedings" clause contravenes three federal statutes: the National Labor Relations Act ("NLRA"), 29 U.S.C. §§ 151 et. seq., the Norris LaGuardia Act, 29 U.S.C. § 101 et seq., and the FLSA. Relevant here, Morris and McDaniel rely on a determination by the National Labor Relations Board ("NLRB" or "Board") that concerted action waivers violate the NLRA. D.R. Horton, 357 NLRB No. 184 (2012) ("Horton I"), enf. denied 737 F.3d 344 (5th Cir. 2013) ("Horton II"); see also Murphy Oil USA, Inc., 361 NLRB No. 72 (2014) ("Murphy Oil I"), enf. denied 808 F.3d 1013 (5th Cir. 2015) ("Murphy Oil II").

         We have jurisdiction under 28 U.S.C. § 1331 and review the district court's order to compel arbitration de novo. Balen v. Holland Am. Line, Inc., 583 F.3d 647, 652 (9th Cir. 2009).

         II

         This case turns on a well-established principle: employees have the right to pursue work-related legal claims together. 29 U.S.C. § 157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978). Concerted activity-the right of employees to act together-is the essential, substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in "separate proceedings." Accordingly, the concerted action waiver violates the NLRA and cannot be enforced.

         A

         The Supreme Court has "often reaffirmed that the task of defining the scope of [NLRA rights] 'is for the Board to perform in the first instance as it considers the wide variety of cases that come before it.'" NLRB v. City Disposal Sys. Inc., 465 U.S. 822, 829 (1984) (quoting Eastex, 437 U.S. at 568). "[C]onsiderable deference" thus attaches to the Board's interpretations of the NLRA. Id. Thus, we begin our analysis with the Board's treatment of similar contract terms.

         The Board has concluded that an employer violates the NLRA

when it requires employees covered by the Act, as a condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial.

Horton I, 357 NLRB No. 184, slip op. at 1.

         The Board's determination rested on two precepts. First, the Board interpreted the NLRA's statutory right "to engage in . . . concerted activities for the purpose of . . . mutual aid or protection" to include a right "to join together to pursue workplace grievances, including through litigation." Id. at 2 (interpreting 29 U.S.C. § 157). Second, the Board held that an employer may not circumvent the right to concerted legal activity by requiring that employees resolve all employment disputes individually. Id. at 4-5, 13 (interpreting 29 U.S.C. § 158). In other words, employees must be able to initiate a work-related legal claim together in some forum, whether in court, in arbitration, or somewhere else. Id. A concerted action waiver prevents this: employees may only resolve disputes in a single forum-here, arbitration-and they may never do so in concert. Id.[1]

         The Supreme Court has instructed us to review the Board's interpretations of the NLRA under the familiar two-step framework set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 & n.9 (1984). Lechmere, Inc. v. NLRB, 502 U.S. 527, 536 (1992) (Chevron framework applies to NLRB constructions of the NLRA). The Board's reasonable interpretations of the NLRA command deference, while the Board's remedial preferences and interpretations of unrelated statutes do not. Hoffman Plastic Compounds, Inc. v. NLRB, 535 U.S. 137, 143-44 (2002).[2]

         Under Chevron, we first look to see "whether Congress has directly spoken to the precise question at issue." Chevron, 467 U.S. at 842. In analyzing Congressional intent, we employ the "traditional tools of statutory construction." Id. at 843 & n. 9. We not only look at the precise statutory section in question, but we also analyze the provision in the context of the governing statute as a whole, presuming congressional intent to create a "'symmetrical and coherent regulatory scheme.'" Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (quoting Gustafson v. Alloyd Co., 513 U.S. 561, 569 (1995)). If we conclude that "the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Chevron, 467 U.S. at 842-43.

         In this case, we need go no further. The intent of Congress is clear from the statute and is consistent with the Board's interpretation.

         To determine whether the NLRA permits a total waiver on concerted legal activity by employees, we begin with the words of the statute. The NLRA establishes the rights of employees in § 7. It provides that:

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

29 U.S.C. § 157.

         Section 8 enforces these rights by making it "an unfair labor practice for an employer . . . to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in [§ 7]." 29 U.S.C. § 158; see NLRB v. Bighorn Beverage, 614 F.2d 1238, 1241 (9th Cir. 1980) (describing relationship between sections; § 7 establishes rights and § 8 enforces them).

         Section 7 protects a range of concerted employee activity, including the right to "seek to improve working conditions through resort to administrative and judicial forums." Eastex, 437 U.S. at 566; see also City Disposal Sys., 465 U.S. at 835 ("There is no indication that Congress intended to limit [§ 7] protection to situations in which an employee's activity and that of his fellow employees combine with one another in any particular way."). Therefore, "a lawsuit filed in good faith by a group of employees to achieve more favorable terms or conditions of employment is 'concerted activity' under § 7 of the National Labor Relations Act." Brady v. NFL, 644 F.3d 661, 673 (8th Cir. 2011). So too is the "filing by employees of a labor related civil action." Altex Ready Mixed Concrete Corp. v. NLRB, 542 F.2d 295, 297 (5th Cir. 1976). Courts regularly protect employees' right to pursue concerted work-related legal claims under § 7. Mohave Elec. Coop., Inc. v. NLRB, 206 F.3d 1183, 1189 (D.C. Cir. 2000) ("filing a civil action by a group of employees is protected activity" under § 7) (internal quotation marks and citation omitted); Leviton Mfg. Co. v. NLRB, 486 F.2d 686, 689 (1st Cir. 1973) (same).

         It is also well-established that the NLRA establishes the right of employees to act in concert: "Employees shall have the right . . . to engage in other concerted activities for the purpose of collective bargaining or other mutual aid and protection." 29 U.S.C. § 157 (emphasis added). Concerted action is the basic tenet of federal labor policy, and has formed the core of every significant federal labor statute leading up to the NLRA. City Disposal Sys., 465 U.S. at 834-35 (describing history of the term "concert" in statutes affecting federal labor policy). Taken together, these two features of the NLRA establish the right of employees to pursue work-related legal claims, and to do so together. The pursuit of a concerted work-related legal claim "clearly falls within the literal wording of § 7 that '[e]mployees shall have the right . . . to engage in . . . concerted activities for the purpose of . . . mutual aid or protection." NLRB v. J. Weingarten, Inc., 420 U.S. 251, 260 (1975) (quoting 29 U.S.C. § 157). The intent of Congress in § 7 is clear and comports with the Board's interpretation of the statute.[3]

         The same is true for the Board's interpretation of § 8's enforcement provisions. Section 8 establishes that "[i]t shall be an unfair labor practice for an employer . . . to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 157." 29 U.S.C. § 158. A "separate proceedings" clause does just that: it prevents the initiation of any concerted work-related legal claim, in any forum. Preventing the exercise of a § 7 right strikes us as "interference" within the meaning of § 8. Thus, the Board's determination that a concerted action waiver violates § 8 is no surprise. And an employer violates § 8 a second time by conditioning employment on signing a concerted action waiver. Nat'l Licorice Co. v. NLRB, 309 U.S. 350, 364 (1940) ("Obviously employers cannot set at naught the National Labor Relations Act by inducing their workmen to agree" to waive the statute's substantive protections); see Retlaw Broad. Co., 310 NLRB no. 160, slip op. at 14 (1993), enforced, 53 F.3d 1002 (9th Cir. 1995) (section 8 prohibits conditioning employment on waiver of § 7 right).[4] Again, we need not proceed to the second step of Chevron because the intent of Congress in § 8 is clear and matches the Board's interpretation.

         Section 8 has long been held to prevent employers from circumventing the NLRA's protection for concerted activity by requiring employees to agree to individual activity in its place. National Licorice, for example, involved a contract clause that discouraged workers from redressing grievances with the employer "in any way except personally." 309 U.S. at 360. This clause violated the NLRA. Id. at 361. The individual dispute resolution practice envisioned by the contract, and required by the employer, represented "a continuing means of thwarting the policy of the Act." Id.

         Similarly, J.H. Stone & Sons, 125 F.2d 752 (7th Cir. 1942), concluded that individual dispute resolution requirements nullify the right to ...


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