Pair of judgments rule on class action waivers

A pair of recent rulings in California could mean significant changes for employment agreements. The debate is over the enforceability of class action waivers in employment contracts.

Two separate decisions, one by the United States Court of Appeals for the Ninth Circuit, and one by the National Labor Relations Board (NLRB) determined that class action waivers are unenforceable.

The most recent decision by the NLRB involved a former grocery store employee’s wage and hour claim against the grocery store’s operator. The company demanded the claim be brought to arbitration, but the NLRB determined that the arbitration clause in the employment contract violated the National Labor Relations Act. Although the arbitration provision did not explicitly reference class actions, the judge ruled that the wording required employers to “relinquish any right they have to resolve such disputes through collective or class action.”

Ultimately, the judge determined the clause was unenforceable because it did not clarify whether the arbitration provision was optional or mandatory.

The Ninth Circuit Court of Appeals ruled on the second case days before the grocery store decision. Similarly, the question before the Court was over arbitration.

The Ninth Circuit case involved an employee incentive agreement which required the employee’s claims to go to arbitration and included a judicial carve-out that allowed the employer’s claims to be brought to court. The incentive agreement also prohibited class actions and stated that if portions of the contract were found unenforceable, they could be severed from the rest of the contract.

The Court ruled the judicial carve-out was procedurally unconscionable and that the class action waiver was unenforceable. In addressing the enforceability of the contract as a whole, the court determined the unenforceable provisions could be severed, rather than voiding the entire contract.

These are two interesting cases. Employment contracts are complex, and employees don’t always understand what they are signing. These cases highlight an important topic worth monitoring, as similar cases will be heard by the Supreme Court later this year.