Can an Employee Resist Submitting Their Claim into Arbitration by Using Another Employee’s Unfavorable Arbitration Outcome? The Ninth Circuit Held – No.

Ninth Circuit Rejects Use of Non-Mutual Offensive Collateral Estoppel to Circumvent Arbitration Agreements

In O’Dell v. Aya Healthcare Services, Inc., the Ninth Circuit addressed whether plaintiffs can use a procedural mechanism, non-mutual offensive collateral estoppel, to avoid enforcement of arbitration agreements—and held they cannot. The decision carries significant implications for employers facing multi-plaintiff claims.

O’Dell arose from a putative wage and hour class action brought by four former employees of a travel-nursing agency who had signed agreements to resolve any employment-related disputes by arbitration rather than in court. The district court compelled the four individual claims to arbitration, which produced mixed results: two arbitrators upheld the arbitration agreements, while two invalidated them. Applying the doctrine of non-mutual offensive collateral estoppel—which allows a new party to prevent a defendant from relitigating an issue already decided against that defendant and applies the prior ruling as a sword rather than a shield—the district court enforced the two unfavorable rulings and applied them broadly in order to invalidate arbitration agreements for the 255 additional employees who had opted into the class action.

The Ninth Circuit reversed, holding that applying non-mutual offensive collateral estoppel is incompatible with the Federal Arbitration Act (“FAA”). A core principle of the FAA is to enforce arbitration agreements as written and resolve disputes through individualized proceedings. As such, the panel reasoned that nothing in the FAA suggests Congress intended preclusion doctrines to undermine agreed-upon arbitration. The Ninth Circuit likened the district court’s approach to a bellwether process—one to which the parties never agreed.

Takeaway: The O’Dell decision was a win for employers with carefully crafted arbitration agreements. Under O’Dell, arbitration agreements governed by the FAA are upheld on an individual basis, preventing the application of unfavorable arbitration outcomes to other employees’ cases.

If you have any questions about the implications of the O’Dell v. Aya Healthcare Services, Inc. decision, how to implement enforceable arbitration agreements, or maintain claims in arbitration, contact Monique Eginli (meginli@clarkhill.com), Liza Goldenberg (lgoldenberg@clarkhill.com), or another member of Clark Hill, LLP’s California Labor and Employment Practice Group.