Ninth Circuit shields employer arbitration agreements from mass invalidation tactic

Four former employees sued Aya, alleging that the company cut their pay in the middle of their assignments and asserting claims for breach of contract, fraudulent inducement, state wage-and-hour violations and violations of the Fair Labor Standards Act. The district court originally sent each of their cases to separate arbitration proceedings, following the terms of the agreements.

The four arbitrations produced a split result. Two arbitrators decided that the arbitration agreements were invalid because the fee and venue provisions were too one-sided against employees. The other two arbitrators found that the agreements were valid, pointing to a savings clause in the contracts that they believed fixed any unfairness. The district court later confirmed three of the four awards and declined to confirm the fourth because Aya had apparently not paid required arbitration fees.

While these proceedings were playing out, 255 additional employees opted in to the case under the FLSA’s collective action mechanism. Aya moved to compel each of those workers to arbitrate under their own agreements, just as it had with the original plaintiffs.

At that point, a new district judge stepped in and raised, on the court’s own initiative, whether Aya should be blocked from enforcing the arbitration agreements against the opt-in plaintiffs. The judge used a doctrine known as non-mutual offensive collateral estoppel, which, in simple terms, allows a party to rely on an earlier decision against someone else to avoid relitigating the same issue.

The court gave binding effect only to the two earlier arbitration decisions that had found Aya’s agreements invalid. It declined to treat the two decisions upholding the agreements the same way, considering them less detailed. On that basis, the court ruled that Aya could not enforce any of the 255 arbitration agreements at all, effectively shutting down hundreds of individual arbitrations before they started.