Stephen Morris v. Ernst & Young

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

STEPHEN MORRIS; KELLY No. 13-16599

MCDANIEL, on behalf of

themselves and all others D.C. No.

similarly situated, 5:12-cv-04964-RMW

Plaintiffs-Appellants,

v. OPINION

ERNST & YOUNG, LLP; ERNST

& YOUNG U.S., LLP,

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of California

Ronald M. Whyte, Senior District Judge, Presiding

Argued and Submitted November 17, 2015

San Francisco, California

Filed August 22, 2016

Before: Sidney R. Thomas, Chief Judge and Sandra S.

Ikuta and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Thomas;

Dissent by Judge Ikuta

2 MORRIS V. ERNST & YOUNG

SUMMARY*

Labor Law

The panel vacated the district court’s order compelling

individual arbitration in an employees’ class action alleging

that Ernst & Young misclassified employees to deny overtime

wages in violation of the Fair Labor Standards Act and

California labor laws.

As a condition of employment, the employees were

required to sign agreements that contained a “concerted

action waiver” requiring the employees to pursue legal claims

against Ernst & Young exclusively through arbitration, and

arbitrate only as individuals and in “separate proceedings.”

The panel held that an employer violates § 7 and § 8 of

the National Labor Relations Act by requiring employees to

sign an agreement precluding them from bringing, in any

forum, a concerted legal claim regarding wages, hours, and

terms of conditions of employment. The panel held that Ernst

& Young interfered with the employees’ right to engage in

concerted activity under the National Labor Relations Act by

requiring the employees to resolve all of their legal claims in

“separate proceedings.” The panel concluded that the

“separate proceedings” terms in the Ernst & Young contracts

could not be enforced.

The panel held that the Federal Arbitration Act did not

dictate a contrary result. The panel held that when an

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

MORRIS V. ERNST & YOUNG 3

arbitration contract professes to waive a substantive federal

right, the savings clause of the Federal Arbitration Act

prevents the enforcement of that waiver.

The panel vacated the order, and remanded to the district

court to determine whether the “separate proceedings” clause

was severable from the contract. The panel held that it need

not reach plaintiff’s alternative arguments regarding the

Norris LaGuardia Act, the Fair Labor Standards Act, or

whether Ernst & Young waived its right to arbitration.

Judge Ikuta dissented because she believed that the

majority’s opinion violated the Federal Arbitration Act’s

command to enforce arbitration agreements according to their

terms, was directly contrary to Supreme Court precedent, and

was on the wrong side of a circuit split. Judge Ikuta

concluded that § 7 of the National Labor Relations Act did

not prevent the collective action waiver at issue here, and

would hold that the employee’s contract must be enforced

according to its terms.

COUNSEL

Max Folkenflik (argued), Folkenflik & McGerity, New York,

New York; H. Tim Hoffman, H. Tim Hoffman Law, Oakland,

California; Ross L. Libenson, Libenson Law, Oakland,

California; for Plaintiffs-Appellants.

Rex S. Heinke (argued) and Gregory W. Knopp, Akin Gump

Strauss Hauer & Feld, Los Angeles, California; Daniel L.

Nash, Akin Gump Strauss Hauer & Feld, Washington, D.C.;

for Defendants-Appellees.

4 MORRIS V. ERNST & YOUNG

Richard F. Griffin, Jr., General Counsel; Jennifer Abruzzo,

Deputy General Counsel; John H. Ferguson, Associate

General Counsel; Linda Dreeben, Nancy E. Kessler Platt and

Meredith L. Jason, Deputy Assistant General Counsel; Kira

Dellinger Vol, Supervisory Attorney; Paul L. Thomas,

Attorney; National Labor Relations Board, Washington, D.C.;

for Amicus Curiae National Labor Relations Board.

OPINION

THOMAS, Chief Judge:

In this case, we consider whether an employer violates the

National Labor Relations Act by requiring employees to sign

an agreement precluding them from bringing, in any forum,

a concerted legal claim regarding wages, hours, and terms

and conditions of employment. We conclude that it does, and

vacate the order of the district court compelling individual

arbitration.

I

Stephen Morris and Kelly McDaniel worked for the

accounting firm Ernst & Young. As a condition of

employment, Morris and McDaniel were required to sign

agreements not to join with other employees in bringing legal

claims against the company. This “concerted action waiver”

required employees to (1) pursue legal claims against Ernst

& Young exclusively through arbitration and (2) arbitrate

only as individuals and in “separate proceedings.” The effect

of the two provisions is that employees could not initiate

concerted legal claims against the company in any forum—in

court, in arbitration proceedings, or elsewhere.

MORRIS V. ERNST & YOUNG 5

Nonetheless, Morris brought a class and collective action

against Ernst & Young in federal court in New York, which

McDaniel later joined. According to the complaint, Ernst &

Young misclassified Morris and similarly situated employees.

Morris alleged that the firm relied on the misclassification to

deny overtime wages in violation of the Fair Labor Standards

Act (“FLSA”), 29 U.S.C.A. § 201 et seq., and California

labor laws.

The case was eventually transferred to the Northern

District of California. There, Ernst & Young moved to

compel arbitration pursuant to the agreements signed by

Morris and McDaniel. The court ordered individual

arbitration and dismissed the case. This timely appeal

followed.

Morris and McDaniel argue that their agreements with the

company violate federal labor laws and cannot be enforced.

They claim that the “separate proceedings” clause

contravenes three federal statutes: the National Labor

Relations Act (“NLRA”), 29 U.S.C. §§ 151 et. seq., the

Norris LaGuardia Act, 29 U.S.C. § 101 et seq., and the FLSA.

Relevant here, Morris and McDaniel rely on a determination

by the National Labor Relations Board (“NLRB” or “Board”)

that concerted action waivers violate the NLRA. D.R.

Horton, 357 NLRB No. 184 (2012) (“Horton I”), enf. denied

737 F.3d 344 (5th Cir. 2013) (“Horton II”); see also Murphy

Oil USA, Inc., 361 NLRB No. 72 (2014) (“Murphy Oil I”),

enf. denied 808 F.3d 1013 (5th Cir. 2015) (“Murphy Oil II”).

We have jurisdiction under 28 U.S.C. § 1331 and review

the district court’s order to compel arbitration de novo. Balen

v. Holland Am. Line, Inc., 583 F.3d 647, 652 (9th Cir. 2009).

6 MORRIS V. ERNST & YOUNG

II

This case turns on a well-established principle: employees

have the right to pursue work-related legal claims together.

29 U.S.C. § 157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566

(1978). Concerted activity—the right of employees to act

together—is the essential, substantive right established by the

NLRA. 29 U.S.C. § 157. 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.

A

The Supreme Court has “often reaffirmed that the task of

defining the scope of [NLRA rights] ‘is for the Board to

perform in the first instance as it considers the wide variety

of cases that come before it.’” NLRB v. City Disposal Sys.

Inc., 465 U.S. 822, 829 (1984) (quoting Eastex, 437 U.S. at

568). “[C]onsiderable deference” thus attaches to the Board’s

interpretations of the NLRA. Id. Thus, we begin our analysis

with the Board’s treatment of similar contract terms.

The Board has concluded that an employer violates the

NLRA

when it requires employees covered by the

Act, as a condition of their employment, to

sign an agreement that precludes them from

filing joint, class, or collective claims

addressing their wages, hours, or other

MORRIS V. ERNST & YOUNG 7

working conditions against the employer in

any forum, arbitral or judicial.

Horton I, 357 NLRB No. 184, slip op. at 1.

The Board’s determination rested on two precepts. First,

the Board interpreted the NLRA’s statutory right “to engage

in . . . concerted activities for the purpose of . . . mutual aid or

protection” to include a right “to join together to pursue

workplace grievances, including through litigation.” Id. at 2

(interpreting 29 U.S.C. § 157). Second, the Board held that

an employer may not circumvent the right to concerted legal

activity by requiring that employees resolve all employment

disputes individually. Id. at 4–5, 13 (interpreting 29 U.S.C.

§ 158). In other words, employees must be able to initiate a

work-related legal claim together in some forum, whether in

court, in arbitration, or somewhere else. Id. A concerted

action waiver prevents this: employees may only resolve

disputes in a single forum—here, arbitration—and they may

never do so in concert. Id.1

The Supreme Court has instructed us to review the

Board’s interpretations of the NLRA under the familiar two-

step framework set forth in Chevron, U.S.A., Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837, 842–43 & n.9

(1984). Lechmere, Inc. v. NLRB, 502 U.S. 527, 536 (1992)

(Chevron framework applies to NLRB constructions of the

1

The contract in Horton I required all claims to be heard in arbitration

and required the arbitrator to “hear only Employee’s individual claims.”

Horton I, 357 NLRB No. 184, slip op. at 1. It also contained an express

waiver of class or collective proceedings in arbitration. Id. Ernst &

Young concedes that the “separate proceedings” term in the exclusive

arbitration agreements here has the same effect.

8 MORRIS V. ERNST & YOUNG

NLRA). The Board’s reasonable interpretations of the NLRA

command deference, while the Board’s remedial preferences

and interpretations of unrelated statutes do not. Hoffman

Plastic Compounds, Inc. v. NLRB, 535 U.S. 137, 143–44

(2002).2

Under Chevron, we first look to see “whether Congress

has directly spoken to the precise question at issue.”

Chevron, 467 U.S. at 842. In analyzing Congressional intent,

we employ the “traditional tools of statutory construction.”

Id. at 843 & n. 9. We not only look at the precise statutory

section in question, but we also analyze the provision in the

context of the governing statute as a whole, presuming

congressional intent to create a “‘symmetrical and coherent

regulatory scheme.’” Food & Drug Admin. v. Brown &

Williamson Tobacco Corp., 529 U.S. 120, 133 (2000)

(quoting Gustafson v. Alloyd Co., 513 U.S. 561, 569 (1995)).

If we conclude that “the intent of Congress is clear, that is the

end of the matter; for the court, as well as the agency, must

give effect to the unambiguously expressed intent of

Congress.” Chevron, 467 U.S. at 842–43.

In this case, we need go no further. The intent of

Congress is clear from the statute and is consistent with the

Board’s interpretation.

2

The Board has both rulemaking and adjudicative powers, 29 U.S.C.

§ 156, § 160, and it may authoritatively interpret the NLRA through either

process. NLRB v. Bell Aerospace Co. Div. of Textron, 416 U.S. 267, 294

(1974) (concluding that the Board may announce “new principles in an

adjudicative proceeding”). Our analysis under Chevron does not extend

to the Board’s interpretation of statutes it does not administer, to the

Board’s interpretation of Supreme Court cases, or to the Board’s remedial

preferences.

MORRIS V. ERNST & YOUNG 9

To determine whether the NLRA permits a total waiver

on concerted legal activity by employees, we begin with the

words of the statute. The NLRA establishes the rights of

employees in § 7. It provides that:

Employees shall have the right to self-

organization, to form, join, or assist labor

organizations, to bargain collectively through

representatives of their own choosing, and to

engage in other concerted activities for the

purpose of collective bargaining or other

mutual aid or protection

29 U.S.C. § 157.

Section 8 enforces these rights by making it “an unfair

labor practice for an employer . . . to interfere with, restrain,

or coerce employees in the exercise of the rights guaranteed

in [§ 7].” 29 U.S.C. § 158; see NLRB v. Bighorn Beverage,

614 F.2d 1238, 1241 (9th Cir. 1980) (describing relationship

between sections; § 7 establishes rights and § 8 enforces

them).

Section 7 protects a range of concerted employee activity,

including the right to “seek to improve working conditions

through resort to administrative and judicial forums.” Eastex,

437 U.S. at 566; see also City Disposal Sys., 465 U.S. at 835

(“There is no indication that Congress intended to limit [§ 7]

protection to situations in which an employee’s activity and

that of his fellow employees combine with one another in any

particular way.”). Therefore, “a lawsuit filed in good faith by

a group of employees to achieve more favorable terms or

conditions of employment is ‘concerted activity’ under § 7 of

the National Labor Relations Act.” Brady v. NFL, 644 F.3d

10 MORRIS V. ERNST & YOUNG

661, 673 (8th Cir. 2011). So too is the “filing by employees

of a labor related civil action.” Altex Ready Mixed Concrete

Corp. v. NLRB, 542 F.2d 295, 297 (5th Cir. 1976). Courts

regularly protect employees’ right to pursue concerted work-

related legal claims under § 7. Mohave Elec. Coop., Inc. v.

NLRB, 206 F.3d 1183, 1189 (D.C. Cir. 2000) (“filing a civil

action by a group of employees is protected activity” under

§ 7) (internal quotation marks and citation omitted); Leviton

Mfg. Co. v. NLRB, 486 F.2d 686, 689 (1st Cir. 1973) (same).

It is also well-established that the NLRA establishes the

right of employees to act in concert: “Employees shall have

the right . . . to engage in other concerted activities for the

purpose of collective bargaining or other mutual aid and

protection.” 29 U.S.C. § 157 (emphasis added). Concerted

action is the basic tenet of federal labor policy, and has

formed the core of every significant federal labor statute

leading up to the NLRA. City Disposal Sys., 465 U.S. at

834–35 (describing history of the term “concert” in statutes

affecting federal labor policy). Taken together, these two

features of the NLRA establish the right of employees to

pursue work-related legal claims, and to do so together. The

pursuit of a concerted work-related legal claim “clearly falls

within the literal wording of § 7 that ‘[e]mployees shall have

the right . . . to engage in . . . concerted activities for the

purpose of . . . mutual aid or protection.” NLRB v. J.

Weingarten, Inc., 420 U.S. 251, 260 (1975) (quoting

29 U.S.C. § 157). The intent of Congress in § 7 is clear and

comports with the Board’s interpretation of the statute.3

3

Eastex clarifies that concerted activity extends to judicial forums, and

it does not limit concerted activity to any particular vehicle or mechanism.

437 U.S. at 556 & n.15. Further, we reject the argument that the NLRA

cannot protect a right to concerted legal action because Rule 23 class

MORRIS V. ERNST & YOUNG 11

The same is true for the Board’s interpretation of § 8’s

enforcement provisions. Section 8 establishes that “[i]t shall

be an unfair labor practice for an employer . . . to interfere

with, restrain, or coerce employees in the exercise of the

rights guaranteed in section 157.” 29 U.S.C. § 158. A

“separate proceedings” clause does just that: it prevents the

initiation of any concerted work-related legal claim, in any

forum. Preventing the exercise of a § 7 right strikes us as

“interference” within the meaning of § 8. Thus, the Board’s

determination that a concerted action waiver violates § 8 is no

surprise. And an employer violates § 8 a second time by

conditioning employment on signing a concerted action

waiver. Nat’l Licorice Co. v. NLRB, 309 U.S. 350, 364

(1940) (“Obviously employers cannot set at naught the

National Labor Relations Act by inducing their workmen to

agree” to waive the statute’s substantive protections); see

Retlaw Broad. Co., 310 NLRB no. 160, slip op. at 14 (1993),

enforced, 53 F.3d 1002 (9th Cir. 1995) (section 8 prohibits

conditioning employment on waiver of § 7 right).4 Again, we

need not proceed to the second step of Chevron because the

intent of Congress in § 8 is clear and matches the Board’s

interpretation.

actions did not exist until after the NLRA was passed. See City Disposal

Sys., 465 U.S. at 835 (noting that the NLRA has forward-looking view of

§ 7 protections). Rule 23 is not the source of employee rights; the NLRA

is. Eastex settles this question by expressly including concerted legal

activity within the set of protected § 7 activities. 437 U.S. at 566.

4

In contrast, there was no § 8 violation in Johnmohammadi v.

Bloomingdale’s, Inc. because the employee there could have opted out of

the individual dispute resolution agreement and chose not to. 755 F.3d

1072, 1076 (9th Cir. 2014).

12 MORRIS V. ERNST & YOUNG

Section 8 has long been held to prevent employers from

circumventing the NLRA’s protection for concerted activity

by requiring employees to agree to individual activity in its

place. National Licorice, for example, involved a contract

clause that discouraged workers from redressing grievances

with the employer “in any way except personally.” 309 U.S.

at 360. This clause violated the NLRA. Id. at 361. The

individual dispute resolution practice envisioned by the

contract, and required by the employer, represented “a

continuing means of thwarting the policy of the Act.” Id.

Similarly, J.H. Stone & Sons, 125 F.2d 752 (7th Cir.

1942), concluded that individual dispute resolution

requirements nullify the right to concerted activity established

by § 7:

By the clause in dispute, the employee bound

himself to negotiate any differences with the

employer and to submit such differences to

arbitration. The result of this arbitration was

final. Thus the employee was obligated to

bargain individually and, in case of failure,

was bound by the result of arbitration. This is

the very antithesis of collective bargaining.

Id. at 756.

The “separate proceedings” clause in this case is no

different. Under the clause, the employee is obligated to

pursue work-related claims individually and, no matter the

outcome, is bound by the result. This restriction is the “very

antithesis” of § 7’s substantive right to pursue concerted

work-related legal claims. For the same reason, the Seventh

Circuit recently concluded that “[a] contract that limits

MORRIS V. ERNST & YOUNG 13

Section 7 rights that is agreed to as a condition of continued

employment qualifies as ‘interfer[ing] with’ or ‘restrain[ing]

. . . employees in the exercise’ of those rights in violation of

Section 8(a)(1).” Lewis v. Epic Sys. Corp., 823 F.3d 1147,

1155 (7th Cir. 2016). Indeed, § 7 rights would amount to

very little if employers could simply require their waiver.

In sum, the Board’s interpretation of § 7 and § 8 is

correct. Section 7’s “mutual aid or protection clause”

includes the substantive right to collectively “seek to improve

working conditions through resort to administrative and

judicial forums.” Eastex, 437 U.S. at 566; accord City

Disposal Sys., 465 U.S. at 834–35. Under § 8, an employer

may not defeat the right by requiring employees to pursue all

work-related legal claims individually. See J.I. Case Co. v.

NLRB, 321 U.S. 332, 337 (1944) (“Individual contracts . . .

may not be availed of to defeat or delay the procedures

prescribed by the National Labor Relations Act”). The

NLRA is unambiguous, and there is no need to proceed to the

second step of Chevron.5

Applied to the Ernst & Young contract, § 7 and § 8 make

the terms of the concerted action waiver unenforceable. The

“separate proceedings” clause prevents concerted activity by

employees in arbitration proceedings, and the requirement

that employees only use arbitration prevents the initiation of

concerted legal action anywhere else. The result: interference

5

Because congressional intent can be ascertained employing the usual

tools of statutory construction, we do not proceed to step two of the

Chevron analysis. However, if that analysis were undertaken, the only

conclusion could be that “[t]he Board’s holding is a permissible

construction of ‘concerted activities for . . . mutual aid or protection’ by

the agency charged by Congress with enforcement of the Act.”

Weingarten, 420 U.S. at 260 (quoting 29 U.S.C. § 157).

14 MORRIS V. ERNST & YOUNG

with a protected § 7 right in violation of § 8. Thus, the

“separate proceedings” terms in the Ernst & Young contracts

cannot be enforced.6

B

The Federal Arbitration Act (“FAA”) does not dictate a

contrary result. The “separate proceedings” provision in this

case appears in an agreement that directs employment-related

disputes to arbitration. But the arbitration requirement is not

the problem. The same provision in a contract that required

court adjudication as the exclusive remedy would equally

violate the NLRA. The NLRA obstacle is a ban on initiating,

in any forum, concerted legal claims—not a ban on

arbitration.

The FAA “was enacted in 1925 in response to widespread

judicial hostility to arbitration agreements.” AT&T Mobility

LLC v. Concepcion, 563 U.S. 333, 339 (2011). In relevant

part, it provides that,

A written provision in any maritime

transaction or a contract evidencing a

6

Ernst & Young also argues for the first time on appeal that there is no

evidence that Morris and McDaniel are statutory employees covered by

the NLRA. This argument was not adequately raised before the district

court and is therefore waived. See Solis v. Matheson, 563 F.3d 425, 437

(9th Cir. 2009). Likewise, we also reject the claim that the Board’s

interpretations of the NLRA in Horton I and Murphy Oil I do not apply

here because there was no NLRB proceeding or finding of an unfair labor

practice. We agree with the agency’s interpretation of the NLRA because

it gives effect to Congress’s intent. Our agreement has nothing to do with

the procedural history of the cases from which the Board’s interpretation

arose.

MORRIS V. ERNST & YOUNG 15

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

such grounds as exist at law or in equity for

the revocation of any contract.

9 U.S.C. § 2. The Act requires courts to “place arbitration

contracts ‘on equal footing with all other contracts,’”

DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463, 468 (2015)

(quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.

440, 443 (2006)), and to “enforce them according to their

terms,” Concepcion, 563 U.S. at 339. Not all contract terms

receive blanket enforcement under the FAA, however. The

FAA’s

saving clause permits agreements to arbitrate

to be invalidated by “generally applicable

contract defenses, such as fraud, duress, or

unconscionability,” but not by defenses that

apply only to arbitration or that derive their

meaning from the fact that an agreement to

arbitrate is at issue.

Id. (quoting Doctor’s Assocs., Inc. v. Casarotto, 517 U.S.

681, 687 (1996)). Accordingly, when a party raises a defense

to the enforcement of an arbitration provision, a court must

determine whether the defense targets arbitration contracts

without “due regard . . . to the federal policy favoring

arbitration.” DIRECTV, 136 S. Ct. at 471 (quoting Volt Info.

Sci., Inc. v. Bd. of Tr. of Leland Stanford Junior Univ.,

489 U.S. 468, 476 (1989)).

16 MORRIS V. ERNST & YOUNG

The contract defense in this case does not “derive [its]

meaning from the fact that an agreement to arbitrate is at

issue.” Concepcion, 563 U.S. at 339. An agreement to

arbitrate work-related disputes does not conflict with the

NLRA. Indeed, federal labor policy favors and promotes

arbitration. United Steelworkers v. Warrior & Gulf

Navigation Co., 363 U.S. 574, 578 (1960).

The illegality of the “separate proceedings” term here has

nothing to do with arbitration as a forum. It would equally

violate the NLRA for Ernst & Young to require its employees

to sign a contract requiring the resolution of all work-related

disputes in court and in “separate proceedings.” The same

infirmity would exist if the contract required disputes to be

resolved through casting lots, coin toss, duel, trial by ordeal,

or any other dispute resolution mechanism, if the contract

(1) limited resolution to that mechanism and (2) required

separate individual proceedings. The problem with the

contract at issue is not that it requires arbitration; it is that the

contract term defeats a substantive federal right to pursue

concerted work-related legal claims.7

When an illegal provision not targeting arbitration is

found in an arbitration agreement, the FAA treats the contract

like any other; the FAA recognizes a general contract defense

7

In contrast, the arbitration cases cited by the dissent and Ernst &

Young involved litigants seeking to avoid an arbitral forum—their

defenses targeted arbitration. Here, Morris and McDaniel seek to exercise

substantive rights guaranteed by federal statute in some forum, including

in arbitration.

MORRIS V. ERNST & YOUNG 17

of illegality.8 9 U.S.C. § 2; Concepcion, 563 U.S. at 339.

The term may be excised, or the district court may decline

enforcement of the contract altogether. See 19 Richard Lord,

8 Williston on Contracts § 19:70 (4th ed. 1990) (“Illegal

portions of a contractual agreement may be severed if the

illegal provision is not central to the parties’ agreement.”);

see also Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d

425, 433 (9th Cir. 2015) (“‘generally applicable’ contract

defense” is “preserved by § 2’s saving clause”).

Crucial to today’s result is the distinction between

“substantive” rights and “procedural” rights in federal law.

The Supreme Court has often described rights that are the

essential, operative protections of a statute as “substantive”

rights. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

29 (1991) (quoting Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)). In

contrast, procedural rights are the ancillary, remedial tools

that help secure the substantive right. See id.; CompuCredit

Corp. v. Greenwood, 132 S. Ct. 665, 671 (2012) (describing

difference between statute’s “guarantee” and provisions

contemplating ways to enforce the core guarantee).9

8

Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662

(2010), is not to the contrary. Under Stolt, an arbitrator may not add to the

terms of an arbitration agreement, and therefore may not order class

arbitration unless the contract provides for it Id. at 684. This does not

require a court to enforce an illegal term. Nor would Stolt prevent the

district court, on remand, from severing the “separate proceedings” clause

to bring the arbitration provision into compliance with the NLRA.

9

The Age Discrimination in Employment Act (“ADEA”), for example,

establishes a primary, substantive right against age discrimination.

29 U.S.C. § 623; Gilmer, 500 U.S. at 27. It provides for collective

proceedings as one way, among many, to secure that right. 29 U.S.C.

18 MORRIS V. ERNST & YOUNG

The difference is key, because substantive rights cannot

be waived in arbitration agreements. This tenet is a

fundamental component of the Supreme Court’s arbitration

jurisprudence: “[b]y agreeing to arbitrate a statutory claim, a

party does not forgo the substantive rights afforded by the

statute; it only submits to their resolution in an arbitral, rather

than a judicial, forum.” Mitsubishi, 473 U.S. at 628. Thus,

if a contract term in an arbitration agreement “operate[s] . . .

as a prospective waiver of a party’s right to pursue statutory

remedies for [substantive rights], we would have little

hesitation in condemning the agreement.” Id. at 637 n.19; see

also Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304,

2310 (2013); Green Tree Fin. Corp.-Al. v. Randolph,

531 U.S. 79, 90 (2000); Gilmer, 500 U.S. at 28;

Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220,

240 (1987).

The FAA does not mandate the enforcement of contract

terms that waive substantive federal rights. Thus, when an

arbitration contract professes the waiver of a substantive

federal right, the FAA’s saving clause prevents a conflict

between the statutes by causing the FAA’s enforcement

mandate to yield. See Epic Sys., 823 F.3d at 1159 (“Because

the NLRA renders [the defendant’s] arbitration provision

illegal, the FAA does not mandate its enforcement.”).10

§ 626 (providing for “Recordkeeping, investigation, and enforcement” of

the ADEA, including collective legal redress).

10

Contrary to the suggestions of the dissent, the Supreme Court has

repeatedly endorsed the distinctive roles of substantive and procedural

rights in its recent arbitration case law. As recently as Italian Colors, the

Supreme Court has held that the key question for courts assessing a

statutory rights claim arising from an arbitration agreement is whether the

agreement “constitute[s] the elimination of the right to pursue that

MORRIS V. ERNST & YOUNG 19

The rights established in § 7 of the NLRA—including the

right of employees to pursue legal claims together—are

substantive. They are the central, fundamental protections of

the Act, so the FAA does not mandate the enforcement of a

contract that alleges their waiver. The text of the Act

confirms the central role of § 7: that section establishes the

“Right of employees as to organization.” 29 U.S.C. § 157

(emphasis added). No other provision of the Act creates

these sorts of rights. Without § 7, the Act’s entire structure

and policy flounder. For example, § 8 specifically refers to

the “exercise of the rights guaranteed in section 157.”

28 U.S.C. § 158; Bighorn Beverage, 614 F.2d at 1241

(“Section 8(a)(1) of the Act implements [§ 7’s] guarantee”).

The Act’s other enforcement sections are similarly

confused without the rights established in § 7. See, e.g.,

29 U.S.C.§ 160 (providing powers of the Board to prevent

interference with rights in § 7). There is no doubt that

Congress intended for § 7 and its right to “concerted

activities” to be the “primary substantive provision” of the

NLRA. See Gilmer, 500 U.S. at 24. For this reason, the right

remedy.” 133 S. Ct. at 2311 (emphasis in original). Similarly, in

CompuCredit, the Court distinguished the core, substantive “guarantee”

of the Credit Repair Organizations Act (“CROA”) from a provision that

contemplated the possibility of a judicial forum for vindicating the core

right. 132 S. Ct. at 671 (holding that contract “parties remain free to

specify” their choice of judicial forum “so long as the guarantee” of the

Act “is preserved.” (emphasis in original)). Contract parties can agree on

the procedural terms they like (such as resolving disputes in arbitration),

but they may not agree to leave the substantive protections of federal law

at the door.

20 MORRIS V. ERNST & YOUNG

to concerted employee activity cannot be waived in an

arbitration agreement.11

The dissent ignores this fundamental component of the

Supreme Court’s arbitration jurisprudence and argues that we

must first locate a “contrary congressional command” before

preventing the enforcement of an invalid contract term. But

as the Seventh Circuit put it, “this argument puts the cart

before the horse.” Epic Sys., 823 F.3d at 1156. Rather,

“[b]efore we rush to decide whether one statute eclipses

another, we must stop to see if the two statutes conflict at

all.” Id. The saving clause in the FAA prevents the need for

such a conflict.

The dissent and Ernst & Young insist that we must

effectively ignore the saving clause and first search to see

which of two statutes will “trump” the other. But this is not

the way the Supreme Court has instructed us to approach

statutory construction. Vimar Seguros y Reaseguros, S.A. v.

M/V Sky Reefer, 515 U.S. 528, 533 (1995) (“[W]hen two

statutes are capable of co-existence . . . it is the duty of the

courts, absent a clearly expressed congressional intention to

the contrary, to regard each as effective.” (citation omitted)).

Nor is a hunt for statutory conflict the “single question” the

Supreme Court has told us to ask when examining the FAA’s

interaction with other federal statutes. Dissent at 35–36.

Indeed, if we first had to locate a conflict between the FAA

and other statutes, the FAA’s saving clause would serve no

purpose, which cannot be the case. TRW Inc. v. Andrews, 534

11

An individual can opt-out of a class action, or opt-in to a collective

action, in federal court (both procedural mechanisms). This does not

enable an employer to require the same individual to waive the substantive

labor right to initiate concerted activities set forth in the NLRA.

MORRIS V. ERNST & YOUNG 21

U.S. 19, 31 (2001) (“a statute ought, upon the whole, to be so

construed that, if it can be prevented, no clause, sentence, or

word shall be superfluous, void, or insignificant” (citation

omitted)); see Epic Sys., 823 F.3d at 1157 (holding that there

is no inherent conflict between the FAA and the NLRA).12

Instead, 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.13

Thus, the dissent’s citations to cases involving the waiver

of procedural rights are misplaced. CompuCredit, for

example, was a choice-of-judicial-forum case that addressed

the waiver of procedural rights. In the Supreme Court’s

words, the case concerned “whether claims under the

[CROA] can proceed in an arbitrable forum.” 132 S. Ct. at

673. In today’s case, the issue is not whether any particular

forum, including arbitration, is available but rather which

substantive rights must be available within the chosen forum.

And the Supreme Court has repeatedly held that the core,

substantive “rights” created by federal law survive contract

terms that purport their waiver. Such was the case in

CompuCredit, where the Court concluded that the use of a

judicial forum contemplated by the CROA could be waived

12

Neither the text of the FAA nor the Supreme Court’s arbitration cases

support the dissent’s theory that the FAA’s saving clause functions

differently when a federal, as opposed to state, statute renders a contract

term susceptible to an illegality defense.

13

Because we see no inherent conflict between the FAA and the NLRA,

we make no holding on which statute would win in a fight, nor do we

opine on the meaning of their respective dates of passage, re-passage, and

amendment.

22 MORRIS V. ERNST & YOUNG

so long as “the guarantee of the legal power to impose

liability—is preserved.” 132 S. Ct. at 671 (emphasis in

original). In other words, parties can choose their forums but

they cannot contract away the basic guarantees of a federal

statute.

Gilmer was also a judicial-choice-of-forum case that

addressed the waiver of procedural rights. There the Supreme

Court again distinguished between a waivable procedural

right (to use a court for class claims rather than arbitration)

and a nonwaivable substantive right (to be free from age

discrimination). 500 U.S. at 27–29. Not surprisingly, the

Court held that the procedural right to use class proceedings

in federal court could be waived. Id. at 32.14

Italian Colors, as well, was a judicial forum case that

endorsed the distinction between a statute’s basic guarantee

and the various ways litigants may go about vindicating it.

The Court was careful to distinguish between the matters

“involved in proving a statutory remedy” and whether an

agreement “constitute[s] the elimination of the right to pursue

that remedy.” Italian Colors, 133 S. Ct. at 2311. The

plaintiffs objected that it would be infeasible to pursue their

antitrust claims against the defendant without the ability to

form a class. The Court rejected this argument, noting that so

long as the substantive federal right remains—there, the right

to pursue antitrust claims in some forum—then the arbitration

agreements would be enforced according to their terms. Id.

at 2310–12.

14

In fact, the arbitration procedures in Gilmer allowed for collective

proceedings. Id. The plaintiff simply preferred court adjudication.

MORRIS V. ERNST & YOUNG 23

The dissent misreads these cases to require a conflict

between the FAA and the substantive provisions of other

federal statutes. But as the Supreme Court has repeatedly

made clear, there is a limiting principle built into the FAA on

what may be waived in arbitration: where substantive rights

are at issue, the FAA’s saving clause works in conjunction

with the other statute to prevent conflict.

The interaction between the NLRA and the FAA makes

this case distinct from other FAA enforcement challenges in

at least three additional and important ways.

First, because a substantive federal right is waived by the

contract here, it is accurate to characterize its terms as

“illegal.” The dissent objects that a term in an arbitration

contract can only be “illegal” if Congress issues a contrary

command specifically referencing arbitration. But then it

proceeds to cite cases where no substantive federal rights

were waived. In those cases, the conflict between contract

terms and federal law was less direct. In Italian Colors, for

example, the Court concluded that the antitrust laws establish

no statutory right to pursue concerted claims: the acts “make

no mention of class actions.” Id. at 2309. In contrast, the

federal statutory regime in this case does exactly the opposite.

Where the antitrust laws are silent on the issue of concerted

legal redress, the NLRA is unambiguous: concerted activity

is the touchstone, and a ban on the pursuit of concerted work-

related legal claims interferes with a core, substantive right.

Second, the enforcement defense in this case has nothing

to do with the adequacy of arbitration proceedings. In

Concepcion and Italian Colors, the Court held that arguments

about the adequacy of arbitration necessarily yield to the

policy of the FAA. Concepcion, 563 U.S. at 351; Italian

24 MORRIS V. ERNST & YOUNG

Colors, 133 S. Ct. at 2312. The Court “specifically rejected

the argument that class arbitration [is] necessary to prosecute

claims ‘that might otherwise slip through the legal system.’”

Italian Colors, 133 S. Ct. at 2312 (quoting Concepcion,

563 U.S. at 351). Here, the NLRA’s prohibition on enforcing

the “separate proceedings” clause has nothing to do with the

adequacy of arbitration. The dissent and Ernst & Young

attempt to read Concepcion for the proposition that concerted

claims and arbitration are fundamentally inconsistent. But

Concepcion makes no such holding. Concepcion involved a

consumer arbitration contract, not a labor contract, and there

was no federal statutory scheme that declared the contract

terms illegal. 563 U.S. at 338. The defense in that case was

based on a judge-made state law rule. In contrast, the

illegality of the contract term here follows directly from the

NLRA. Arbitration between groups of employees and their

employers is commonplace in the labor context. It would no

doubt surprise many employers to learn that individual

proceedings are a “fundamental” attribute of workplace

arbitration. See also Gilmer, 500 U.S. at 32 (noting that

employer’s arbitration “rules also provide for collective

proceedings”).15

Third, the enforcement defense in this case does not

specially “disfavor” arbitration. The dissent makes dire

predictions about the future of workplace arbitration if the

15

The dissent suggests that employee-claimants could act in “concert”

by simply hiring the same lawyers. This is not what the NLRA

contemplates by the term “concert.” An employer could not, for example,

require its employees to sign a pledge not to join a union but remain in

conformity with the NLRA by suggesting that employees hire similar

attorneys to represent them in wage negotiations. See also City Disposal

Sys., 465 U.S. at 834–35 (discussing the term “concert” in federal labor

law at the time of the NLRA’s passage).

MORRIS V. ERNST & YOUNG 25

“separate proceedings” clause is invalidated. However, our

holding is not that arbitration may not be used in workplace

disputes. Quite the contrary. Rather, our holding is simply

that when arbitration or any other mechanism is used

exclusively, substantive federal rights continue to apply in

those proceedings. The only role arbitration plays in today’s

case is that it happens to be the forum the Ernst & Young

contract specifies as exclusive. The contract here would face

the same NLRA troubles if Ernst & Young required its

employees to use only courts, or only rolls of the dice or tarot

cards, to resolve workplace disputes—so long as the

exclusive forum provision is coupled with a restriction on

concerted activity in that forum. At its heart, this is a labor

law case, not an arbitration case.

Further, nothing in the Supreme Court’s recent arbitration

case law suggests that a party may simply incant the acronym

“FAA” and receive protection for illegal contract terms

anytime the party suggests it will enjoy arbitration less

without those illegal terms. We have already held that

Concepcion supports no such argument:

The Supreme Court’s holding that the

FAA preempts state laws having a

“disproportionate impact” on arbitration

cannot be read to immunize all arbitration

agreements from invalidation no matter how

unconscionable they may be, so long as they

invoke the shield of arbitration. Our court has

recently explained the nuance: “Concepcion

outlaws discrimination in state policy that is

unfavorable to arbitration.”

26 MORRIS V. ERNST & YOUNG

Chavarria v. Ralphs Grocery Co., 733 F.3d 916, 927 (9th Cir.

2013) (quoting Mortensen v. Bresnan Commc’ns, LLC, 722

F.3d 1151, 1160 (9th Cir.2013)). Do not be misled.

Arbitration is consistent with, and encouraged by, the NLRA

following today’s opinion.

At bottom, the distinguishing features of today’s case are

simple. 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 & 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.” J.I. Case, 321 U.S. at 337.16

III

In sum, the “separate proceedings” provision of the Ernst

& Young contract interferes with a substantive federal right

protected by the NLRA’s § 7. The NLRA precludes contracts

that foreclose the possibility of concerted work-related legal

claims. An employer may not condition employment on the

requirement that an employee sign such a contract.

16

We recognize that our sister Circuits are divided on this question. We

agree with the Seventh Circuit, the only one that “has engaged

substantively with the relevant arguments.” Epic Sys., 823 F.3d at 1159;

but see Murphy Oil II, 808 F.3d at 1018 (enforcing employer’s concerted

action waiver under the FAA); Sutherland v. Ernst & Young LLP,

726 F.3d 290, 297 n.8 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d

1050, 1053–54 (8th Cir. 2013).

MORRIS V. ERNST & YOUNG 27

It is “well established . . . that a federal court has a duty

to determine whether a contract violates the law before

enforcing it.” Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 83

(1982). Because the district court’s order compelling

arbitration was based, at least in part, on the separate

proceedings provision, we must vacate the order and remand

to the district court to determine whether the “separate

proceedings” clause is severable from the contract. We take

no position on whether arbitration may ultimately be required

in this case.

In addition, because the contract’s conflict with the

NLRA is determinative, we need not—and do not—reach

plaintiff’s alternative arguments regarding the Norris

LaGuardia Act, the FLSA, or whether Ernst & Young waived

its right to arbitration.17

REVERSED AND REMANDED.

IKUTA, Circuit Judge, dissenting:

Today the majority holds that § 7 of the National Labor

Relations Act (NLRA) precludes employees from waiving the

right to arbitrate their disputes collectively, thus striking at

the heart of the Federal Arbitration Act’s (FAA) command to

enforce arbitration agreements according to their terms. This

decision is breathtaking in its scope and in its error; it is

17

Putative-amici labor scholars’ motion for leave to file an amicus brief

is denied. See Fed. R. App. P. 29(e). The motion for judicial notice of

additional authorities is also denied. See Louis Vuitton Malletier, S.A. v.

Akanoc Sols., Inc., 658 F.3d 936, 940 n.2 (9th Cir. 2011).

28 MORRIS V. ERNST & YOUNG

directly contrary to Supreme Court precedent and joins the

wrong side of a circuit split. I dissent.

I

The plaintiffs in this case, Stephen Morris and Kelly

McDaniel, entered into an agreement with Ernst & Young

that included a program for resolving covered disputes. The

parties agreed that the program was “the sole method for

resolving disputes within its coverage.” Under the program,

the parties agreed they would first try to resolve a covered

dispute by mediation. If that failed, either party could choose

to proceed to binding arbitration. The agreement set forth the

applicable procedures. Subparagraph K provided:

Separate Proceedings. If there is more than

one Covered Dispute between the Firm and an

Employee, all such Covered Disputes may be

heard in a single proceeding. Covered

Disputes pertaining to different Employees

will be heard in separate proceedings.

As the Supreme Court has explained, such a waiver of class

actions is typical in the arbitration context because the class

procedural mechanism “interferes with fundamental attributes

of arbitration and thus creates a scheme inconsistent with the

FAA.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333,

344 (2011). Among other problems, “there is little incentive

for lawyers to arbitrate on behalf of individuals when they

may do so for a class and reap far higher fees in the process.”

Id. at 347. Class mechanisms also eviscerate the principal

benefits of arbitration — speed and informality, “mak[ing]

the process slower, more costly, and more likely to generate

procedural morass than final judgment.” Id. at 348.

MORRIS V. ERNST & YOUNG 29

Notwithstanding the agreement to arbitrate, Morris

brought a complaint in federal district court alleging that

Ernst & Young had violated the Fair Labor Standards Act

(FLSA) and analogous state law by improperly classifying

him and other employees as exempt employees who were not

entitled to overtime wages. (McDaniel was later added as a

plaintiff.) Morris purported to bring the action as a class

action under Rule 23 of the Federal Rules of Civil Procedure

and as a collective action under 29 U.S.C. § 216(b) of the

FLSA.1 After some procedural complications not relevant

here, Ernst & Young moved to compel arbitration under its

agreement. Morris argued that the “Separate Proceedings”

clause of his agreement violated § 7 of the NLRA. The

district court rejected this argument. In reversing, the

majority holds that employees may not be required to waive

the use of a class action mechanism in arbitrating or litigating

their claims. To the extent the Supreme Court has held that

class actions are inconsistent with arbitration, see

Concepcion, 563 U.S. at 344, the majority effectively cripples

1

Section 216(b) provides a class action mechanism similar to that

contemplated by Rule 23, although it requires voluntary opt in by the

members of the class. It states, in pertinent part:

An action to recover the liability prescribed in

[§ 216(b)] may be maintained against any employer

(including a public agency) in any Federal or State

court of competent jurisdiction by any one or more

employees for and in behalf of himself or themselves

and other employees similarly situated. No employee

shall be a party plaintiff to any such action unless he

gives his consent in writing to become such a party and

such consent is filed in the court in which such action

is brought.

29 U.S.C. § 216(b).

30 MORRIS V. ERNST & YOUNG

the ability of employers and employees to enter into binding

agreements to arbitrate.

II

Under the FAA, agreements to arbitrate are “valid,

irrevocable, and enforceable, save upon such grounds as exist

at law or in equity for the revocation of any contract.”

9 U.S.C. § 2; Concepcion, 563 U.S. at 339. As the Supreme

Court has repeatedly explained, the FAA was enacted to

overcome “widespread judicial hostility to arbitration

agreements.” Concepcion, 563 U.S. at 339. The Supreme

Court’s cases have “repeatedly described the Act as

embod[ying] [a] national policy favoring arbitration and a

liberal federal policy favoring arbitration agreements.” Id. at

346 (internal quotation marks and citations omitted). The

FAA’s national policy applies to the states, see, e.g.,

Southland Corp. v. Keating, 465 U.S. 1, 10 (1984), and

forecloses any state statute or common law rule that attempts

“to undercut the enforceability of arbitration agreements,” id.

at 16, unless the savings clause in § 2 is applicable, see

Concepcion, 563 U.S. at 344; Perry v. Thomas, 482 U.S. 483,

492 n.9 (1987). Therefore, 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. See Concepcion, 563 U.S. at 339–42.

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

MORRIS V. ERNST & YOUNG 31

such a federal statute includes an express “contrary

congressional command.” CompuCredit Corp. v.

Greenwood, 132 S. Ct. 665, 669 (2012) (internal quotation

marks omitted). The burden is on the party challenging the

arbitration agreement to show that Congress expressly

intended to preclude a waiver of the judicial forum. Gilmer

v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991). “If

such an intention exists, it will be discoverable in the text of

the [federal act], its legislative history, or an ‘inherent

conflict’ between arbitration and the [federal act’s]

underlying purposes.” Id. “Throughout such an inquiry, it

should be kept in mind that ‘questions of arbitrability must be

addressed with a healthy regard for the federal policy

favoring arbitration.’” Id. (quoting Moses H. Cone Mem’l

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).

Contrary to the majority’s focus on whether the NLRA

confers “substantive rights,” in every case considering a

party’s claim that a federal statute precludes enforcement of

an arbitration agreement, the Supreme Court begins by

considering whether the statute contains an express “contrary

congressional command” that overrides the FAA. See, e.g.,

Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304,

2309 (2013); CompuCredit, 132 S. Ct. at 669, Gilmer,

500 U.S. at 29.2 To date, in every case in which the Supreme

Court has conducted this analysis of federal statutes, it has

harmonized the allegedly contrary statutory language with the

FAA and allowed the arbitration agreement at issue to be

2

The Supreme Court has applied the same approach, and reached the

same conclusion, in upholding a collective bargaining agreement with a

mandatory arbitration clause governed by the NLRA. See 14 Penn Plaza

LLC v. Pyett, 556 U.S. 247, 265–74 (2009).

32 MORRIS V. ERNST & YOUNG

enforced according to its terms.3 Thus in CompuCredit, the

Court considered a purported “contrary congressional

command” in the Credit Repair Organization Act (CROA),

15 U.S.C. § 1679 et seq., which the plaintiffs claimed

precluded consumers from entering an arbitration agreement

that waived their right to litigate an action in a judicial forum.

132 S. Ct. at 669. The plaintiffs pointed to the language in

CROA that required a business to tell a consumer that “[y]ou

have a right to sue,” 15 U.S.C. § 1679c(a), that provided for

actual and punitive damages in both individual legal actions

and class actions, id. § 1679g, and that provided that “[a]ny

waiver by any consumer of any protection provided by or any

right of the consumer” was void and could “not be enforced

by any Federal or State court,” id. § 1679f(a).

The Supreme Court rejected this claim. Overruling the

Ninth Circuit, the Court held that had Congress meant to

prohibit arbitration clauses, “it would have done so in a

manner less obtuse than what respondents suggest.”

CompuCredit, 132 S. Ct. at 672. According to the Court,

when Congress wants to restrict the use of arbitration “it has

done so with a clarity that far exceeds the claimed indications

in the CROA.” Id. The Supreme Court gave two examples

of what would constitute a sufficiently clear “contrary

congressional command”:

3

Only Wilko v. Swan held that the Securities Act of 1933 contained an

unwaivable right to a judicial forum for claims under the Act, thereby

precluding the enforcement of an arbitration agreement between parties to

a sale of securities. 346 U.S. 427, 432–37 (1953). But the Court

expressly overruled Wilko in Rodriguez de Quijas v. Shearson/Am.

Express, Inc., rejecting its reasoning as “pervaded . . . by the old judicial

hostility to arbitration.” 490 U.S. 477, 480 (1989) (internal quotation

marks omitted); see also Pyett, 556 U.S. at 266–67.

MORRIS V. ERNST & YOUNG 33

“No predispute arbitration agreement shall be valid or

enforceable, if the agreement requires arbitration of a dispute

arising under this section.” Id. (quoting 7 U.S.C. § 26(n)(2)

(2006 ed., Supp. IV)).

“Notwithstanding any other provision of law, whenever

a motor vehicle franchise contract provides for the use of

arbitration to resolve a controversy arising out of or relating

to such contract, arbitration may be used to settle such

controversy only if after such controversy arises all parties to

such controversy consent in writing to use arbitration to settle

such controversy.” Id. (quoting 15 U.S.C. § 1226(a)(2) (2006

ed.)).

Because the language in the two CROA provisions cited

by plaintiffs did not expressly state that a predispute

arbitration agreement was unenforceable, the Court

determined that they were consistent with enforcement of an

arbitration agreement. The “right to sue” language, for

instance, merely allowed parties to enter into an agreement

requiring initial arbitral adjudication, which then could be

reviewed in a court of law. Id. at 670–71. Because the

CROA was “silent on whether claims under the Act can

proceed in an arbitrable forum,” the Court held that “the FAA

requires the arbitration agreement to be enforced according to

its terms.” Id. at 673.

In Gilmer, plaintiffs claimed the Age Discrimination in

Employment Act of 1967 (ADEA) contained a contrary

congressional command to the FAA’s mandate. 500 U.S. at

27–30. Specifically, the plaintiffs pointed to language

allowing employees to litigate in court as providing an

unwaivable right to access a judicial forum: “[a]ny person

aggrieved may bring a civil action in any court of competent

34 MORRIS V. ERNST & YOUNG

jurisdiction for such legal or equitable relief as will effectuate

the purpose of this chapter,” 29 U.S.C. § 626(c)(1); Gilmer,

500 U.S. at 27. They also pointed to language they claimed

precluded employees from waiving the right to bring a class

action: “The provisions of this chapter shall be enforced in

accordance with the powers, remedies, and procedures

provided in section . . . 216,” 29 U.S.C. § 626(b), where

§ 216(b) (also at issue here) states that an action under the

FLSA may be brought in court “by any one or more

employees for and in behalf of himself or themselves and

other employees similarly situated,” although the represented

employees must consent. In other words, the plaintiffs

argued that because the ADEA explicitly provided for a class

mechanism, the statute precluded the enforcement of an

arbitration agreement that included a class action waiver.

The Supreme Court rejected this argument. Once again,

the statutory language was not sufficiently clear to prevent

the enforcement of arbitration agreements that included a

class action waiver. Looking closely at the text of the statute,

the Court noted that while Congress allowed for judicial

resolution of claims, it “did not explicitly preclude arbitration

or other nonjudicial resolution of claims.” Gilmer, 500 U.S.

at 27–29. Moreover, “the fact that the [ADEA] provides for

the possibility of bringing a collective action does not mean

that individual attempts at conciliation were intended to be

barred.” Id. at 32. Thus, the language on which the plaintiffs

relied was entirely consistent with enforcing an arbitration

agreement that precluded a class mechanism. See also Italian

Colors, 133 S. Ct. at 2311 (“In Gilmer . . . we had no qualms

in enforcing a class waiver in an arbitration agreement even

though the federal statute at issue . . . expressly permitted

collective actions.”). Turning to the ADEA’s legislative

history, the Supreme Court found nothing showing a

MORRIS V. ERNST & YOUNG 35

congressional intention to preclude waiver of a judicial

forum. Gilmer, 500 U.S. at 29. Indeed, the Court found in

the ADEA a “flexible approach to resolution of claims” and

other indicia that Congress did not intend to preclude

individual arbitration of disputes. Id. at 29–31.

Finally, in Italian Colors, there was a purported “inherent

conflict,” Gilmer, 500 U.S. at 26, between arbitration and the

policies underlying the Sherman and Clayton Acts, 133 S. Ct.

at 2310–12. According to plaintiffs, the cost of individually

arbitrating their antitrust claims would so far exceed the

potential recovery that requiring them to litigate their claims

individually would render the plaintiffs unable to vindicate

their federal statutory rights. Id. The Supreme Court rejected

this argument. Examining the text of the acts, the Court

noted that the federal acts “make no mention of class

actions,” and were “enacted decades before the advent of

Federal Rule of Civil Procedure 23.” Id. at 2309. The Court

gave even less weight to the plaintiffs’ policy arguments.

With respect to the argument that “federal law secures a

nonwaivable opportunity to vindicate federal policies by

satisfying the procedural strictures of Rule 23 or invoking

some other informal class mechanism in arbitration,” the

Court simply stated that “we have already rejected that

proposition” in Concepcion. Id. at 2310. In Concepcion, the

Court made clear that the FAA allows parties to waive the use

of a class mechanism because such a mechanism “interferes

with fundamental attributes of arbitration.” 563 U.S. at 344.

In sum, 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

36 MORRIS V. ERNST & YOUNG

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,” Moses H. Cone,

460 U.S. at 24, 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. See Green Tree Fin. Corp.

v. Randolph, 531 U.S. 79, 89–90 (2000) (noting that the Court

has “rejected generalized attacks on arbitration that rest on

‘suspicion of arbitration as a method of weakening the

protections afforded in the substantive law to would-be

complainants.’” (quoting Rodriguez de Quijas v.

Shearson/Am. Express, Inc., 490 U.S. 477, 481 (1989))).

III

Here, the majority ignores the thrust of Supreme Court

precedent and declares that arbitration is precluded because

it interferes with a substantive right protected by § 7 and § 8

of the NLRA.4 Section 7 states:

4

Although the majority cites Chevron, U.S.A., Inc. v. Nat. Res. Def.

Council, Inc., 467 U.S. 837 (1984), it does not defer to the NLRB’s

interpretation of § 7 as overriding the command of the FAA in In re D.R.

Horton v. NLRB, 357 NLRB No. 184 (2012), which was subsequently

overruled by the Fifth Circuit. See D.R. Horton v. NLRB, 737 F.3d 344

(5th Cir. 2013). Rather, the majority states that “the NLRA is

unambiguous, and there is no need to proceed to the second step of

Chevron.” Maj. Op. at 13.

MORRIS V. ERNST & YOUNG 37

Employees shall have the right to self-

organization, to form, join, or assist labor

organizations, to bargain collectively through

representatives of their own choosing, and to

engage in other concerted activities for the

purpose of collective bargaining or other

mutual aid or protection.

29 U.S.C. § 157. Section 8 merely makes it “an unfair labor

practice for an employer . . . to interfere with, restrain, or

coerce employees in the exercise of the rights guaranteed in

[§ 7].” 29 U.S.C. § 158(a).

A

Nothing in this language comes remotely close to the

examples of contrary congressional commands the Supreme

Court identified in CompuCredit, where Congress expressly

stated that “[n]o predispute arbitration agreement shall be

valid or enforceable.” 132 S. Ct. at 672. The language of § 7

and § 8 of the NLRA neither mention arbitration nor specify

the right to take legal action at all, whether individually or

collectively. See Italian Colors, 133 S. Ct. at 2309 (“The

Sherman and Clayton Acts make no mention of class

actions.”). Applying Supreme Court precedent, we must

conclude there is no “contrary congressional command” in

the text of the NLRA.

Moreover, contrary to the majority, Maj. Op. at 6, nothing

in either § 7 or § 8 creates a substantive right to the

availability of class-wide claims that might be contrary to the

FAA’s mandate. While the NLRA protects concerted

activity, it does not give employees an unwaivable right to

proceed as a group to arbitrate or litigate disputes. Rather, as

38 MORRIS V. ERNST & YOUNG

in CompuCredit and Gilmer, the language can be harmonized

with enforcement of an arbitration agreement that waives

class action mechanisms. According to a dictionary roughly

contemporaneous with the passage of the NLRA, “concerted”

action is action that is “mutually contrived or planned: agreed

on.” Webster’s International Dictionary of the English

Language 295 (1903 ed.). A natural reading of § 7’s right “to

engage in other concerted activities for the purpose of

collective bargaining or other mutual aid or protection”

enables employees to jointly arrange, plan, and carry out

group efforts to dispute employer positions. In a legal

context, this could include joint legal strategies, shared

arguments and resources, hiring the same attorneys, or even

requesting the Department of Labor to bring an independent

action against the employer. But the language does not

expressly preserve any right for employees to use a specific

procedural mechanism to litigate or arbitrate disputes

collectively; even less does it create an unwaivable right to

such mechanism. Indeed, the text provides no basis for the

majority’s conclusion that § 7 gives employees a substantive,

unwaivable right to use Rule 23, § 216(b) of the FLSA, or

any other procedural mechanism that might be available for

bringing class-wide actions.5 Accordingly, the Supreme

Court’s precedent compels the conclusion that neither § 7 nor

§ 8 contains a “contrary congressional command” that

precludes enforcing Morris’s arbitration agreement according

to its terms. If this were not the case, the Court’s statement

5

The majority claims that Eastex, Inc. v. NLRB, 437 U.S. 556, 566

(1978), conclusively supports its view that § 7 of the NLRA includes a

substantive right to class action procedures. Maj. Op. at 10–11 n.3. This

is incorrect. The Court declined to delineate the rights that are provided

by § 7 in an administrative or judicial forum, stating: “We do not address

here the question of what may constitute ‘concerted’ activities in this

context.” Eastex, Inc., 437 U.S. at 566 n.15.

MORRIS V. ERNST & YOUNG 39

that Gilmer “had no qualms in enforcing a class waiver in an

arbitration agreement even though the federal statute at issue,

the Age Discrimination in Employment Act, expressly

permitted collective actions,” Italian Colors, 133 S. Ct. at

2311, would be meaningless. Under the majority’s reasoning,

regardless whether a class action waiver survives express

language in the ADEA, as Gilmer held, the waiver

nevertheless is unenforceable in every action by an employee

against an employer due to the unwaivable right to class

procedures in the NLRA.

Nor does the legislative history of the NLRA demonstrate

an intent to preclude individual resolution of disputes. The

NLRA was enacted decades before Rule 23 created the

modern class action in 1966. As the Fifth Circuit observed,

in enacting the NLRA “Congress did not discuss the right to

file class or consolidated claims against employers,” and

therefore “the legislative history also does not provide a basis

for a congressional command to override the FAA.” D.R.

Horton, Inc. v. NLRB, 737 F.3d 344, 361 (5th Cir. 2013). The

majority does not cite any legislative history to the contrary.

Finally, there is no “inherent conflict between arbitration”

and the “underlying purposes” of the NLRA. Gilmer,

500 U.S. at 26. The majority argues that the very purpose of

the NLRA is to enable employees to engage in concerted

activity, and therefore, it necessarily also has the purpose of

enabling employees to engage in collective legal activity,

including class actions. Maj. Op. at 9–10. Even assuming

that concerted action is “the basic tenet of federal labor

policy,” id. at 10, nothing in the NLRA suggests that this

protection includes the right to resolve disputes using a

particular legal procedure. The majority’s attempt to equate

a substantive right to concerted action with a legal procedural

40 MORRIS V. ERNST & YOUNG

mechanism for resolving disputes has no basis in history or

Supreme Court precedent. To the contrary, the Court has

held that “the right of a litigant to employ Rule 23 is a

procedural right only, ancillary to the litigation of substantive

claims.” Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326,

332 (1980). Moreover, as the Fifth Circuit pointed out, there

is “limited force to the argument that there is an inherent

conflict between the FAA and NLRA when the NLRA would

have to be protecting a right of access to a procedure that did

not exist when the NLRA was (re)enacted.” D.R. Horton,

737 F.3d at 362. Indeed, as the majority acknowledges,

“federal labor policy favors and promotes arbitration.” Maj.

Op. at 16 (emphasis added). See United Steelworkers of Am.

v. Warrior & Gulf Navigation Co., 363 U.S. 574, 578 (1960)

(“[A]rbitration of labor disputes under collective bargaining

agreements is part and parcel of the collective bargaining

process itself.”); Pyett, 556 U.S. at 257 (“Parties generally

favor arbitration precisely because of the economics of

dispute resolution.”).

In sum, nothing in the text, legislative history, or purposes

of § 7 precludes enforcement of an arbitration agreement

containing a class action waiver.

B

In order to avoid this conclusion, the majority disregards

the Supreme Court’s guidance, and instead conflates the

question whether “the FAA’s mandate has been overridden

by a contrary congressional command,” CompuCredit, 132 S.

Ct. at 669 (internal quotation marks omitted), with the

question whether an employee’s agreement to arbitrate

individually is invalid under the FAA’s savings clause,

9 U.S.C. § 2 (providing that an agreement to arbitrate “shall

MORRIS V. ERNST & YOUNG 41

be valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the revocation of any

contract”). The majority reasons that: (1) the “Separate

Proceedings” requirement in Morris’s contract that all

disputes must be resolved individually is illegal because it

violates the NLRA; (2) a party may raise a defense that a

contract provision is illegal, and such a defense is generally

applicable and not related specifically to arbitration

agreements; and therefore (3) in response to Ernst & Young’s

motion to compel arbitration, Morris’s defense that the

“Separate Proceedings” requirement is illegal is preserved by

the FAA’s savings clause. In adopting this line of reasoning,

the majority joins the Seventh Circuit (the only circuit with

which the majority agrees). See Lewis v. Epic Sys. Corp.,

— F.3d — , 2016 WL 3029464 (7th Cir. 2016) (holding that

§ 7 of the NLRA mandates collective legal action for

employees, and therefore an arbitration agreement waiving

such collective legal action is “illegal” and thus

unenforceable under the FAA’s savings clause.)

This reasoning is contrary to the Supreme Court’s FAA

jurisprudence. Maj. Op. at 14–17. First, the Supreme Court

does not apply the savings clause to federal statutes; rather,

it considers whether Congress has exercised its authority to

override the FAA’s mandate to enforce arbitration

agreements according to their terms. See CompuCredit,

132 S. Ct. at 669. If there is no “contrary congressional

command,” i.e., an express statement such as “[n]o predispute

arbitration agreement shall be valid or enforceable,” id., then

the Supreme Court will conclude that the federal statute at

issue can be harmonized with the FAA. Second, the

majority’s reasoning is specious because it is based on the

erroneous assumption that the waiver of the right to use a

collective mechanism in arbitration or litigation is “illegal.”

42 MORRIS V. ERNST & YOUNG

But such a waiver would be illegal only if it were precluded

by a “contrary congressional command” in the NLRA, and

here there is no such command.

Moreover, even if the FAA’s savings clause were

applicable to a federal statute, the majority’s construction of

§ 7 and § 8 of the NLRA as giving employees a substantive,

nonwaivable right to classwide actions would not be saved

under that clause. As Concepcion explained, such a

purported right would disproportionately and negatively

impact arbitration agreements by requiring procedures that

“interfere[] with fundamental attributes of arbitration.”

Concepcion, 563 U.S. at 344. Because class procedures are

generally “incompatible with arbitration,” id. at 351, and

“nothing in [the FAA’s savings clause] suggests an intent to

preserve [defenses] that stand as an obstacle to the

accomplishment of the FAA’s objectives,” such rules do not

fall within the confines of the savings clause, id. at 343. The

majority’s argument that the nonwaivable right to class-wide

procedures it has discerned in § 7 applies equally to

arbitration and litigation and so is saved by the § 2 savings

clause, Maj. Op. at 16–17, was expressly rejected in

Concepcion, see 563 U.S. at 338 (rejecting plaintiffs’

argument that a state rule prohibiting class action waivers in

adhesion contracts applied equally to judicial and arbitral

proceedings and thus fit the § 2 savings clause).

The majority’s erroneous reasoning leads to a result that

is directly contrary to Congress’s goals in enacting the FAA.

Given that lawyers are unlikely to arbitrate on behalf of

individuals when they can represent a class, see id., 563 U.S.

at 347, and an arbitrator cannot hear a class arbitration unless

such a proceeding is explicitly provided for by agreement,

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662,

MORRIS V. ERNST & YOUNG 43

684 (2010), the employee’s purported nonwaivable right to

class-wide procedures virtually guarantees that a broad swath

of workplace claims will be litigated, Concepcion, 563 U.S.

at 347. The majority’s reasoning is likewise contrary to the

Supreme Court’s ruling that collective actions are not

necessary to protect employees’ federal statutory rights. See

Gilmer, 500 U.S. at 32; see also Circuit City Stores, Inc.

Adams, 532 U.S. 105, 123 (2001) (“We have been clear in

rejecting the supposition that the advantages of the arbitration

process somehow disappear when transferred to the

employment context.”).

IV

The Second, Fifth, and Eight Circuits have concluded that

the NLRA does not invalidate collective action waivers in

arbitration agreements. See Cellular Sales of Missouri, LLC

v. NLRB, — F.3d — , 2016 WL 3093363, at *2 (8th Cir.

2016); D.R. Horton, 737 F.3d at 362; Sutherland v. Ernst &

Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013). These

decisions are consistent with Supreme Court precedent, which

has made it abundantly clear that arbitration agreements must

be enforced according to their terms unless Congress has

given an express contrary command.

In teasing out of the NLRA a “mandate” that prevents the

enforcement of Morris’s arbitration agreement, the majority

exhibits the very hostility to arbitration that the FAA was

passed to counteract. The Court recognized in Concepcion

that the pre-FAA judicial antagonism to arbitration

agreements “manifested itself in ‘a great variety’ of ‘devices

and formulas’ declaring arbitration against public policy.”

563 U.S. at 342 (quoting Robert Lawrence Co. v. Devonshire

Fabrics, Inc., 271 F.2d 402, 406 (2d Cir. 1959)). Today the

44 MORRIS V. ERNST & YOUNG

majority invents a new such formula. 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.