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Ernst and Young v. Morris

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Supreme Court of the United States
Ernst and Young v. Morris
Term: 2017
Important Dates
Argument: October 2, 2017
Decided: May 21, 2018
Outcome
Ninth Circuit reversed
Vote
5 - 4 to reverse
Majority
Neil Gorsuch • Chief Justice John G. Roberts • Anthony Kennedy • Clarence Thomas • Samuel Alito
Concurring
Clarence Thomas
Dissenting
Ruth Bader Ginsburg • Stephen Breyer • Sonia Sotomayor • Elena Kagan


Ernst and Young v. Morris is a case argued during the October 2017 term of the U.S. Supreme Court. Argument in the case was held on October 2, 2017. The case came on a writ of certiorari to the United States Court of Appeals for the 9th Circuit. The court consolidated arguments in the case with arguments in Epic Systems Corporation v. Lewis and NLRB v. Murphy Oil.


HIGHLIGHTS
  • The case: Ernst and Young required its employees to sign agreements that mandated any work-related claims be submitted to individual arbitration. The agreements contained a waiver against any concerted action; that is, the employees could neither initiate nor join any class action or collective action proceedings against the company in any forum. Further, claims in arbitration were required to be brought in separate proceedings. Two employees filed a class action against the firm. A district court granted Ernst and Young's motion to dismiss and to compel arbitration in the case in accordance with the terms of the arbitration agreement, but a divided panel of the United States Court of Appeals for the 9th Circuit reversed and remanded the decision of the district court, holding that the agreement was unenforceable under Section 7 of the National Labor Relations Act.
  • The issue: Can an employer prohibit employees from pursuing work-related claims in a class or collective action?
  • The outcome: The Supreme Court reversed the Ninth Circuit, holding that under the Arbitration Act, agreements to arbitrate must be enforced.[1]


    • You can review the lower court's opinion here.[2]
    Here are our pages on the consolidated cases: Epic Systems Corporation v. Lewis and NLRB v. Murphy Oil.

    Background

    As a condition of employment to work with Ernst and Young, Stephen Morris and a colleague, Kelly McDaniel, were required to sign agreements that mandated any work-related claims be submitted to individual arbitration. The agreements contained a waiver against any concerted action; that is, the employees could neither initiate nor join any class action or collective action proceedings against the company in any forum. Further, claims in arbitration were required to be brought in separate proceedings. Subsequent to signing the waiver during his work at Ernst and Young, Morris filed a class and collective action against Ernst and Young in a federal court in New York. McDaniel joined the suit some time later. Morris alleged that he was misclassified by the firm under the Fair Labor Standards Act and was denied overtime pay for which he was eligible. The case was transferred to the United States District Court for the Northern District of California. There, Ernst and Young filed a motion to dismiss Morris' lawsuit and to compel individual arbitration. The district court granted Ernst and Young's motion to dismiss and to compel arbitration in the case. Morris and McDaniel appealed to the United States Court of Appeals for the 9th Circuit. The appeal was heard by a three-judge panel of the Ninth Circuit. On the panel were the court's Chief Judge Sidney Thomas and circuit judges Sandra Ikuta and Andrew Hurwitz.[2]

    In his opinion for a divided 2-1 panel, Judge Thomas reversed and remanded the district court's decision. The court held that the concerted action waiver violated Section 7 of the National Labor Relations Act (hereafter, NLRA) protecting such activities. The court further held that the National Labor Relations Board's interpretation of concerted activities includes the filing of class action or collective action lawsuits, and that the Board's interpretation must be afforded Chevron deference by federal courts. In Judge Thomas' words,[2]

    “

    The NLRA establishes a core right to concerted activity. Irrespective of the forum in which disputes are resolved, employees must be able to act in the forum together. The structure of the Ernst and Young contract prevents that. Arbitration, like any other forum for resolving disputes, cannot be structured so as to exclude all concerted employee legal claims. As the Supreme Court has instructed, when 'private contracts conflict with' the NLRA, 'they obviously must yield or the Act would be reduced to a futility.'[3]

    		”

    Judge Thomas addressed a separate challenge raised by Ernst and Young, that the Federal Arbitration Act (hereafter, FAA) superseded the NLRA's requirements. Specifically, Ernst and Young presented their argument relying on a provision the FAA known as the FAA's savings clause. That clause stipulates that any written contract "evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of any contract." Ernst and Young argued that in the absence of a contrary congressional command, its arbitration agreement must be enforced under the FAA and that nothing in the NLRA prohibited such an agreement. Judge Thomas, however, citing the Seventh Circuit's judgment in Epic Systems Corporation v. Lewis, stated that "we join the Seventh Circuit in treating the interaction between the NLRA and the FAA in a very ordinary way: when an arbitration contract professes to waive a substantive federal right, the saving clause of the FAA prevents the enforcement of that waiver." In holding that concerted activity constituted a substantive right under the NLRA, the court did not accept Ernst and Young's FAA argument.[2]

    Writing for herself in dissent, Judge Sandra Ikuta stated that the majority opinion was "breathtaking in its scope and in its error." Judge Ikuta argued that the Supreme Court's precedent would permit the enforcement of the separate proceedings clause at issue here under the FAA, because Section 7 of the NLRA does not prevent arbitration agreements containing class action waivers. She wrote,[2]

    “

    when a party claims that a state law prevents the enforcement of an arbitration agreement, the court must determine whether that law is preempted by the FAA or is rescued from preemption by the FAA’s savings clause. ... But when a party claims that a federal statute makes an arbitration agreement unenforceable, the Supreme Court takes a different approach. In determining whether the FAA’s mandate requiring 'courts to enforce agreements to arbitrate according to their terms' has been overridden by a different federal statute, the Supreme Court requires a showing that such a federal statute includes an express 'contrary congressional command.' ... the Supreme Court consistently rejects claims that a 'contrary congressional command' precludes courts from enforcing arbitration agreements according to their terms, including when such agreements waive the use of class mechanisms. In analyzing such arguments, the Court has focused primarily on a single question: whether the text of the federal statute at issue expressly precludes the use of a predispute arbitration agreement for the underlying claims at issue.

    If the statute does not, the Court’s 'healthy regard for the federal policy favoring arbitration,' ... leads it to conclude that there is no such contrary command, and the Court reads the purportedly contrary federal statute to allow the enforcement of the agreement to arbitrate. The Court has likewise rejected claims that the legislative history or policy of the federal statute requires a different result. ... nothing in the text, legislative history, or purposes of § 7 precludes enforcement of an arbitration agreement containing a class action waiver. ... Because I would follow the Supreme Court precedent and join the majority of the circuits concluding that § 7 of the NLRA does not prevent the collective action waiver at issue here, I would hold that Morris’s contract must be enforced according to its terms. I therefore dissent.[3]

    		”

    Petitioner's challenge

    Ernst and Young LLP, the petitioner, challenged the holding of the Ninth Circuit. Ernst and Young argued that its arbitration waiver was consistent with Section 7 of the National Labor Relations Act and, if not, that the waiver must still be enforced under the Federal Arbitration Act.

    Certiorari granted

    On September 8, 2016, Ernst and Young, the petitioner, initiated proceedings in the Supreme Court of the United States in filing a petition for a writ of certiorari to the Ninth Circuit. The U.S. Supreme Court granted Ernst and Young's certiorari request on January 13, 2017, consolidating arguments in the case with arguments in Epic Systems Corporation v. Lewis and NLRB v. Murphy Oil. Argument in the case was held on October 2, 2017.[4]

    Question presented

    Question presented:

    "Whether the collective-bargaining provisions of the National Labor Relations Act prohibit the enforcement under the Federal Arbitration Act of an agreement requiring an employee to arbitrate claims against an employer on an individual, rather than collective, basis."[4]

    Audio

    • Audio of oral argument:[5]



    Transcript

    • Transcript of oral argument:[6]

    Outcome

    Decision

    On a vote of 5 - 4, the Supreme Court reversed the ruling of the Ninth Circuit. The Supreme Court held that under the Arbitration Act, agreements to arbitrate must be enforced.[1]

    Majority opinion

    Justice Neil Gorsuch authored the opinion for the court majority, joined by Chief Justice John Roberts and Justices Samuel Alito, Anthony Kennedy, and Clarence Thomas.

    Gorsuch began by framing what he saw as the question at the heart of the case: whether employers and employees can contract to require arbitraiton, or whether an employee may always bring a collective action regardless of an agrement to arbitrate individually. Gorsuch ruled that the Federal Arbitration Act requires courts to enforce agreements to arbitrate and that the collective bargaining rights established in the National Labor Relations Act did not contravene the FAA's enforcement requirement:

    “ As a matter of policy these questions are surely debatable. But as a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings. Nor can we agree with the employees’ suggestion that the National Labor Relations Act (NLRA) offers a conflicting command. It is this Court’s duty to interpret Congress’s statutes as a harmonious whole rather than at war with one another. And abiding that duty here leads to an unmistakable conclusion. The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum . . Far from conflicting, the Arbitration Act and the NLRA have long enjoyed separate spheres of influence and neither permits this Court to declare the parties’ agreements unlawful.[1][3] ”


    Gorsuch rejected the employees' arguments that the savings clause of the NLRA invalidated agreements to arbitrate in cases like this, stressing that the cause only "permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability." Gorsuch also rejected the dissent's argument that the majority had overridden Congress' intent in passing the NLRA. Gorsuch wrote, "Today's decision merely declines to read into the NLRA a novel right to class action proedures that the Board's own general counsel disclaimed as recently as 2010."[1]

    Concurrence by Justice Thomas

    Justice Clarence Thomas joined the majority opinion in full and also wrote separately. Thomas wrote, "I write separately to add that the employees also cannot prevail under the plain meaning of the Federal Arbitration Act."[1]

    Dissent by Justice Ginsburg

    Justice Ruth Bader Ginsburg dissented, joined by Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan. Framing the case as she saw it, Ginsburg wrote, "Does the Federal Arbitration Act (Arbitration Act or FAA) permit employers to insist that their employees, whenever seeking redress for commonly experienced wage loss, go it alone, never mind the right secured to employees by the National Labor Relations Act (NLRA) 'to engage in . . . concerted activities' for their 'mutual aid or protection'? The answer should be a resounding 'No.'"[1] She wrote:

    “ The Court ignores the reality that sparked the NLRA’s passage: Forced to face their employers without company, employees ordinarily are no match for the enterprise that hires them. Employees gain strength, however, if they can deal with their employers in numbers. That is the very reason why the NLRA secures against employer interference employees’ right to act in concert for their 'mutual aid or protection.' . . . The FAA demands no such suppression of the right of workers to take concerted action for their 'mutual aid or protection.'[1][3] ”


    Ginsburg would have concluded that the FAA does not protect contracts requiring individual arbitration because contracts to require individual arbitration violate the rights guaranteed by the NLRA and are therefore illegal. Citing earlier precedent for "the ordinarily superseding rule that 'illegal promises will not be enforced,'" she reasoned that the FAA could not allow for contracts that were illegal under other existing laws.[1]

    Text of the opinion

    See also

    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 United States Supreme Court, "Epic Systems Corporation v. Lewis opinion," May 21, 2018
    2. ↑ 2.0 2.1 2.2 2.3 2.4 U.S. Court of Appeals for the Ninth Circuit, Stephen Morris et al. v. Ernst and Young, LLP et al., August 22, 2016
    3. ↑ 3.0 3.1 3.2 3.3 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    4. ↑ 4.0 4.1 Supreme Court of the United States, Ernst and Young v. Morris, January 13, 2017
    5. ↑ Supreme Court of the United States, Ernst and Young v. Morris, argued October 2, 2017
    6. ↑ Supreme Court of the United States, Ernst and Young v. Morris, argued October 2, 2017
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