Ninth Circuit Further Weighs In on Class Waivers in Employment Arbitration Agreements
The California Supreme Court wasn’t the only court focused on arbitration agreements today. The Ninth Circuit also issued a pair of decisions relating to the enforceability of class waiver provisions in employment arbitration agreements. In both instances, the Ninth Circuit upheld the enforceability of the agreements.
In the first case, Johnmohammadi v. Bloomingdale’s, the Ninth Circuit considered whether a class waiver provision was enforceable to bar court litigation of wage and hour claims brought on behalf of a putative class of employees. The narrow issue before the court was whether the class waiver violated the Norris-LaGuardia Act and/or the National Labor Relations Act, both of which protect employees’ rights to engage in concerted activities for mutual aid and protection and prohibit employers from restraining or interfering with these rights. The court held that the class waiver provision did not violate either Act because the arbitration agreement allowed employees 30 days to elect to opt-out of the agreement. Had the plaintiff opted out, she would have been free to pursue her class claims in court. By not opting out, she elected to proceed with any claims individually in arbitration. The court held that this opt-out right effectively precluded a finding that the plaintiff was coerced into waiving class claims or otherwise restrained from pursuing them. The plaintiff admitted she was aware of the arbitration agreement and the right to opt-out and that she did not elect to do so. There was no evidence that the plaintiff was coerced into not opting out. On these facts, the Ninth Circuit held that the class waiver provision in the agreement was enforceable and not in violation of the NLRA or Norris-LaGuardia Act.
In the second case decided by the Ninth Circuit today, Davis v. Nordstrom, the court considered whether a class action waiver provision that the employer added to its arbitration policy (set forth in an employee handbook, not a free-standing agreement) was enforceable to preclude an employee from litigating wage and hour claims on behalf of a putative class in court. The court held that the handbook provision was an enforceable agreement and that the class waiver provision was enforceable.
Nordstrom had a long-standing arbitration policy in its employee handbook, but the policy did not include class waiver language. The handbook did include language indicating that Nordstrom would provide employees with 30 days written notice of any substantive changes to the arbitration provision in the handbook to allow employees to consider the changes and decide whether or not to continue employment subject to those changes. In July and August 2011, Nordstrom revised its arbitration policy to require that employees arbitrate any employment claims individually and to preclude the filing of class claims. Nordstrom sent letters to its employees in June 2011 advising them that the arbitration policy had been modified and provided a copy of the new policy. In August 2011, the plaintiff filed a putative class action alleging wage and hour violations against Nordstrom.
Nordstrom moved to compel arbitration of the plaintiff’s individual claims, but the district court denied the motion. The district court held that no “agreement” was ever reached because Nordstrom did not provide clear notice to employees of the change, that it would go into effect in 30 days, and that by continuing employment employees would be bound by the change. The Ninth Circuit reversed the district court’s ruling and held that the plaintiff had entered into an enforceable agreement by continuing her employment after notice of the change to the arbitration policy, thereby agreeing to the change. “While the communications with its employees were not the model of clarity, we find that Nordstrom satisfied the minimal requirements under California law for providing employees with reasonable notice of a change to its employee handbook by sending a letter to [the employees] informing them of the modification, and not seeking to enforce the arbitration provision during the 30 day notice period.”
As for Nordstrom’s failure to expressly alert employees that by continuing employment for 30 days they would be agreeing to the change to the arbitration policy, the Ninth Circuit held that California law does not require employers to expressly inform employees that continued employment constitutes acceptance of policy modifications. As such, this was not a basis for invalidating the class waiver or for finding that no agreement was reached.
The Ninth Circuit’s decisions in these two cases are here and here. While today's Ninth Circuit opinions are favorable for California employers, employers are cautioned that best practice is still to have any arbitration agreement be a separate agreement rather than simply a part of an employee handbook. Additionally, it is a good idea to specifically advise employees not only that their employment is at-will, but also that this means the employer has the right to modify the terms and conditions of employment at any time and that continued employment constitutes the employee's acceptance of any such modifications.