In a post last week, we noted a recent trend of federal courts strongly enforcing employment arbitration agreements under the Federal Arbitration Act (“FAA”). That trend continues in Richards v. Ernst & Young, LLP, Case No. 11-17530 (9th Cir. Aug. 21, 2013), which holds that a defendant’s pretrial participation in litigation does not, absent prejudice to the plaintiff, necessarily waive the defendant’s right to compel arbitration at a later time.
Michelle Richards, a former employee of Ernst & Young, filed a putative class action suit alleging unpaid wages and failure to provide mandatory breaks. Although Richards had signed an arbitration agreement, at the time the suit was filed, the agreement would have been unenforceable under then-current California Supreme Court precedent. Approximately five years into the litigation, the U.S. Supreme Court issued its landmark decision in AT&T v. Concepcion, 131 S. Ct. 1740 (2011), which held that the FAA superseded contrary state law and overruled certain California cases holding otherwise. In response to this change in the law, Ernst & Young moved to compel arbitration.
The district court ruled that Ernst & Young waived the right to compel arbitration by failing to assert that defense in an action brought by two other former employees, David Ho and Sarah Fernandez, whose action had been consolidated with that of Ms. Richards. The Ninth Circuit, in a short per curiam opinion, reversed the district court. The Court found no evidence that Richards had suffered any prejudice as a result of Ernst & Young’s delayed enforcement of its agreement. Notably, the Ninth Circuit rejected Richards’s claim that she was prejudiced by the attorneys’ fees and expenses she incurred during the time period before Ernst & Young moved to compel arbitration. The court held that such expenses were “self-inflicted” and resulted from Richards’s “deliberate choice of an improper forum, in contravention of [her] contract…”
The court also rejected the controversial National Labor Relations Board decision D.R. Horton, 357 N.L.R.B. No. 184 (2012), which invalidates arbitration agreements forbidding class or collective action claims. The court, citing American Express v. Italian Colors Rest., 133 S. Ct. 2304, 2309 (2013), reiterated the Supreme Court’s pronouncement that “courts must rigorously enforce arbitration agreements according to their terms” and that “Congress did not expressly provide that it was overriding any provision of the FAA when it enacted the NLRA.” The Ninth Circuit thus joins the overwhelming majority of courts rejecting D.R. Horton as inconsistent with both the FAA and recent Supreme Court precedent.