The Ninth Circuit ruled Wednesday that Ernst & Young’s arbitration agreement, which contains a class waiver, should be applied in a wage-and-hour suit against the accounting giant, and refused to follow the National Labor Relations Board’s ‘s controversial D.R. Horton decision.
The appeals court held that a California federal district court had erred in denying Ernst & Young’s bid to force arbitration in a state law wage-and-hour class action led by former financial managing associate Michelle Richards because the company had waived its right to arbitrate by not raising the issue as a defense in an action brought by two former employees, whose case was consolidated with Richards’ suit.
“Because Ms. Richards has not established any prejudice as a result of Ernst & Young’s alleged delay in asserting its arbitral rights, we reverse the judgment of the district court,” the Ninth Circuit’s per curiam opinion said.
Ernst & Young had argued in the appeal that it did not move to compel arbitration in the case until after the U.S. Supreme Court issued its ruling in favor of arbitration class waivers in AT&T Mobility v. Concepcion because prior to that both the Ninth Circuit and the California Supreme Court had held that class action waivers in employee arbitration agreements were unconscionable. The plaintiffs argued that Ernst & Young had deliberately delayed, but the Ninth Circuit found that even though the district court had trimmed and a claim for injunctive relief from Richards’ suit and Richards’ had incurred discovery costs, she was not prejudiced by Ernst & Young’s decision not to seek arbitration sooner.
The court then rebuffed the plaintiffs’ alternate argument that it should follow the NLRB’s D.R. Horton decision, which found it to be a violation of federal labor law for an employer to require as a condition of employment that employees agree to waive their rights to bring class claims in any forum. Noting that the overwhelming majority of courts to consider D.R. Horton had found it to be in conflict with the explicit pronouncements of the Supreme Court concerning the policies undergirding the Federal Arbitration Act, the Ninth Circuit declined to follow the NLRB’s ruling.
The Supreme Court has ruled that courts must rigorously enforce arbitration agreements according to their terms unless the FAA’s mandate has been overturned by a contrary congressional command, and Congress did not explicitly include such a command in federal labor law, the Ninth Circuit said.
The court stated that because it found that the district court should have compelled arbitration, and because the arbitration agreement between Ernst & Young and Richards precludes class arbitration, it was also vacating the district court’s order certifying a class of litigants with Richards as its representative.
The case marks the second recent appeals court victory for Ernst & Young in enforcing its class waiver in wage-and-hour cases.
On August 9, the Second Circuit ruled that the company’s individual arbitration agreement should be applied in a proposed collective action accusing the firm of misclassifying its accountants as overtime-exempt, ruling that the Fair Labor Standards Act does not contain a contrary congressional command that would prohibit the enforcement of class action waivers. The Second Circuit also declined to follow D.R. Horton.
The case is Richards v. Ernst & Young LLP, case number 11-17530, in the U.S. Court of Appeals for the Ninth Circuit.