In Morris v. Ernst & Young, LLP, ___ F.3d ___ (9th Cir. Aug. 22, 2016), the Ninth Circuit held that a class action ban in an employment contract's arbitration clause ran afoul of the National Labor Relations Act because the provision prohibited concerted, collective action by employees. In so holding, the court adopted the NLRB's reasoning in In re D. R. Horton, Inc., 357 NLRB No. 184, 2012 WL 36274 (N.L.R.B. Jan. 3, 2012) (even though the Fifth Circuit later overruled that decision). Slip op. at 6-14.
Chief Judge Thomas, writing for the two-judge majority, explained why the class action ban (which required that all employment-related disputes be adjudicated in "separate proceedings" in arbitration) was unenforceable notwithstanding the Federal Arbitration Act and Concepcion. Id. at 14-26. In particular:
The illegality of the “separate proceedings” term here has nothing to do with arbitration as a forum. It would equally violate the NLRA for Ernst & Young to require its employees to sign a contract requiring the resolution of all work-related disputes in court and in “separate proceedings.” The same infirmity would exist if the contract required disputes to be resolved through casting lots, coin toss, duel, trial by ordeal, or any other dispute resolution mechanism, if the contract (1) limited resolution to that mechanism and (2) required separate individual proceedings. The problem with the contract at issue is not that it requires arbitration; it is that the contract term defeats a substantive federal right to pursue concerted work-related legal claims.
Id. at 16 (footnote omitted). Later in the opinion, Chief Judge Thomas reiterated the point:
The dissent makes dire predictions about the future of workplace arbitration if the holding is not that arbitration may not be used in workplace disputes. Quite the contrary. Rather, our holding is simply that when arbitration or any other mechanism is used exclusively, substantive federal rights continue to apply in those proceedings. The only role arbitration plays in today’s case is that it happens to be the forum the Ernst & Young contract specifies as exclusive. 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 law case, not an arbitration case.
.... Do not be misled. Arbitration is consistent with, and encouraged by, the NLRA following today’s opinion.
Id. at 24-26 (emphasis in original). The opinion leaves it to the district court to determine whether the "separate proceedings" provision "is severable from the contract." Id. at 27.
Judge Ikuta dissented (id. at 27-44), explaining that in his view, invalidating the class action ban is contrary to the FAA and the Supreme Court's view (expressed in Concepcion and other decisions) that "arbitration agreements must be enforced according to their terms unless Congress has given an express contrary command." Id. at 43 (Ikuta, J., dissenting). The majority disagreed with this framing of the issue, but it also believed that the NLRA contained a sufficiently "express contrary command." See id. at 23. Judge Ikuta did not agree. See id. at 31-36.
The California Supreme Court concurred with Judge Ikuta on this point in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 366-74 (2014). Justice Werdegar strenuously dissented. Id. at 397-406. The U.S. Supreme Court denied the ensuing cert. petition in early 2015. It seems probable that Ernst & Young will file a cert. petition here, perhaps preceded by a petition for en banc rehearing.