California Court Finds Employee Contract Clause Unenforceable


San Francisco, CA: California's Ninth Circuit Court of Appeals recently ruled that employer contracts preventing employees from filing class action lawsuits and requiring employees to file claims through separate proceedings are not enforceable. This means that employees who have signed arbitration clauses in their contracts and had their rights violated may be able to file a California labor lawsuit in situations they may not have been able to before. California labor lawsuits are frequently filed in relation to wage and hour violations, but some companies have moved to clauses requiring employees to file individual arbitrations to settle legal disputes.

The decision was handed down in a lawsuit filed by Stephen Morris and other employees against Ernst & Young. According to the judges' decision, Stephen Morris and Kelly McDaniel filed a class action lawsuit alleging they had been misclassified as exempt from overtime pay. When they were hired by Ernst & Young, the employees signed an agreement that they would only bring individual claims against Ernst & Young - not class action claims - and those claims had to be brought through arbitration. The contract stated that claims had to be brought through "separate proceedings."

In other words, employees could not join together in any forum to file a claim against Ernst & Young and could only file individual claims in arbitration. Morris and McDaniel, however, filed a class action lawsuit, which was dismissed by the Northern District of California after Ernst & Young moved to compel arbitration. The plaintiffs appealed the Northern District court's decision, arguing the agreements were unenforceable because they violate the National Labor Relations Act.

Two of the three judges in the Ninth Circuit Court of Appeals agreed with the plaintiffs, finding that the contract could not be enforced because the "separate proceedings" clause violated the National Labor Relations Act. As a result, the panel vacated the lower court's dismissal of the lawsuit and remanded the lawsuit to district court to determine whether the "separate proceedings" clause could be severed from the overall contract.

"Concerted activity - the right of employees to act together - is the essential, substantive right established by the NRLA. 29 U.S.C. §157," Chief Judge Thomas wrote. "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."

The lawsuit is Stephen Morris, et al. v. Ernst & Young, et al., No. 13-16599, D.C. No. 5:12-cv-04964-RMW.

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1 Comment

  1. Diana Z Mihailovich, M.A.
    September 26, 2016
    Must one seek legal counsel to understand At Will? Timeline dates? and No reason other than NO Fit??? Please advise.

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