Category Archives: Class Waivers

6th Cir.: Collective Action Waivers in Employees’ Separation Agreements Did Not Validly Waive Employees’ Rights to Participate in Collective Action Under FLSA, Absent Valid Arbitration Provision

Killion v. KeHE Distributors, LLC

Although this one is not exactly breaking news, we are discussing it because of its importance in the general landscape of FLSA jurisprudence. As discussed here, this case was before the Sixth Circuit on Plaintiffs’ appeal, regarding an issue of first impression. Specifically, the Sixth Circuit was asked to decide whether an agreement by employees to waive their rights to participate in a collective action under the FLSA can be enforceable in the absence of an agreement to arbitrate their FLSA claims. Reversing the district court, the Sixth Circuit held that such agreements are unenforceable, absent an agreement to arbitrate the claims in an alternative forum, because in such a situation there is no congressional interest that weighs against the remedial goals of the FLSA.

In this case, former employees of the Defendant brought putative collective action against their former employer to recover overtime wages under the Fair Labor Standards Act (FLSA). The district court determined that collective-action waiver in certain employees’ separation agreements was enforceable, despite the fact that the separation agreements contained no agreement to arbitrate their FLSA claims. The employees appealed, and the Sixth Circuit reversed.

Framing the parties’ respective positions, the Sixth Circuit explained:

This brings us to the merits regarding the validity of the unmodified collective-action waivers. The plaintiffs argue that this court’s decision in Boaz v. FedEx Customer Information Services, Inc., 725 F.3d 603 (6th Cir.2013), controls because it holds that an employee will not be bound by a contract entered into with his employer that has the effect of limiting his rights under the FLSA. In response, KeHE argues that cases upholding agreements that require employees to submit to arbitration on an individual basis are more on point. No court of appeals appears to have squarely addressed this issue outside of the arbitration context.

Given its recent related decision in Boaz, the Sixth Circuit began by discussing that case’s implications on the issue presented in this case:

This court’s decision in Boaz provides the relevant framework for the issue before us. In Boaz, the plaintiff-employee signed an employment agreement that contained a provision requiring her to bring any legal action against the defendant-employer within “6 months from the date of the event forming the basis of [the] lawsuit.” Id. at 605. When the plaintiff filed an FLSA lawsuit after the six-month time period had elapsed, the defendant moved for summary judgment, arguing that her claims were untimely under the employment agreement.

This court disagreed. It first noted that “[s]hortly after the FLSA was enacted, the Supreme Court expressed concern that an employer could circumvent the Act’s requirements—and thus gain an advantage over its competitors—by having its employees waive their rights … to minimum wages, overtime, or liquidated damages.” Id. at 605–06. The Boaz court concluded that because the waiver of the statutory-limitations period would have deprived the plaintiff of her FLSA rights, the provision was invalid. Id. at 606. It also rejected the defendant’s argument that a plaintiff may waive procedural rights under the FLSA, just not substantive ones. Id. Finally, the court distinguished cases enforcing an employee’s agreement to arbitrate his or her claims on an individual basis due to the strong federal presumption in favor of arbitration. Id. at 606–07 (distinguishing Floss v. Ryan’s Family Steak Houses Inc., 211 F.3d 306 (6th Cir.2000), on that basis).

Following its own reasoning from the Boaz decision, the Sixth Circuit concluded that normally a plaintiff’s right to participate in a collective action under 29 U.S.C. 216(b) cannot be waived:

Boaz therefore implies that a plaintiff’s right to participate in a collective action cannot normally be waived. The court clearly said that “[a]n employment agreement cannot be utilized to deprive employees of their statutory [FLSA] rights.” Id. (alteration in original) (internal quotation marks omitted). And “Congress has stated its policy that ADEA plaintiffs [and thus FLSA plaintiffs because the statutory language is identical] should have the opportunity to proceed collectively.” Hoffmann–La Roche Inc. v. Sperling, 493 U.S. 165, 170, 110 S.Ct. 482, 107 L.Ed.2d 480 (1989). We have little reason to think that the right to participate in a collective action should be treated any differently than the right to sue within the full time period allowed by the FLSA. The concern, Boaz explained, is that “an employer could circumvent the Act’s requirements—and thus gain an advantage over its competitors—by having its employees waive their rights under the Act.” 725 F.3d at 605.

Conscious of the body of law that has permitted collective action waivers when they are contained in agreements containing arbitration clauses, the court was careful to distinguish such cases:

We are aware, of course, that the considerations change when an arbitration clause is involved. Boaz explained that “an employee can waive his right to a judicial forum only if the alternative forum allow[s] for the effective vindication of [the employee’s] claim.” Id. at 606–07 (alteration in original) (internal quotation marks omitted). Arbitration, it noted, is such a forum. Id. at 606. But this line of precedents is of only minimal relevance here because the plaintiffs’ collective-action waivers in this case contained no arbitration clause. And, in any event, none of our precedents permitting arbitration of FLSA claims has addressed employees’ collective-action rights.

KeHE nonetheless points to cases from other circuits enforcing agreements to arbitrate FLSA claims on an individual basis. As KeHE notes, the Eleventh Circuit recently addressed the jurisprudence of the courts of appeals on collective-action waivers in the arbitration context in Walthour v. Chipio Windshield Repair, LLC, 745 F.3d 1326 (11th Cir.2014). It determined that

all of the circuits to address this issue have concluded that § 16(b) does not provide for a non-waivable, substantive right to bring a collective action. See Sutherland v. Ernst & Young LLP, 726 F.3d 290, 296–97 & n. 6 (2d Cir.2013) (determining that the FLSA does not contain a “contrary congressional command” that prevents an employee from waiving his or her ability to proceed collectively and that the FLSA collective action right is a waivable procedural mechanism); Owen [v. Bristol Care, Inc.], 702 F.3d [1050,] 1052–53 [ (8th Cir.2013) ] (determining that the FLSA did not set forth a “contrary congressional command” showing “that a right to engage in class actions overrides the mandate of the FAA in favor of arbitration”); Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 298 (5th Cir.2004) (rejecting the plaintiffs’ claim that their inability to proceed collectively deprived them of a substantive right to proceed under the FLSA because, in Gilmer [v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) ], the Supreme Court rejected similar arguments regarding the ADEA); Adkins [v. Labor Ready, Inc.], 303 F.3d [496,] 503 [ (4th Cir.2002) ] (determining that a plaintiff failed to point to any “suggestion in the text, legislative history, or purpose of the FLSA that Congress intended to confer a non-waivable right to a class action under that statute” and that the plaintiff’s “inability to bring a class action, therefore, cannot by itself suffice to defeat the strong congressional preference for an arbitral forum”); cf. D.R. Horton [v. NLRB ], 737 F.3d [344,] 362 [ (5th Cir.2013) ] (determining that the National Labor Relations Act does not contain a contrary congressional command overriding the application of the FAA).

Id. at 1336. The Eleventh Circuit then joined this emerging consensus. Id. Crucially, however, the respective waiver agreements in all of the above-cited cases included provisions subjecting the employees to arbitration. See Walthour, 745 F.3d at 1330 (noting the existence of an arbitration*592 agreement between the parties); Sutherland, 726 F.3d at 296 (same); Owen, 702 F.3d at 1052 (same); Carter, 362 F.3d at 298 (same); Adkins, 303 F.3d at 498 (same).

These circuit decisions, in turn, rely on the Supreme Court’s decisions in Gilmer, 500 U.S. at 35, 111 S.Ct. 1647 (“We conclude that Gilmer has not met his burden of showing that Congress, in enacting the ADEA, intended to preclude arbitration of claims under that Act.”), and American Express Co. v. Italian Colors Restaurant, ––– U.S. ––––, 133 S.Ct. 2304, 2309, 186 L.Ed.2d 417 (2013) (holding that “[n]o contrary congressional command requires us to reject the waiver of class arbitration here”). See Walthour, 745 F.3d at 1331 (citing Gilmer and Italian Colors); Sutherland, 726 F.3d at 296 (quoting Italian Colors ); Carter, 362 F.3d at 298 (citing Gilmer); Adkins, 303 F.3d at 502 (citing Gilmer ). Accordingly, none of the foregoing authorities speak to the validity of a collective-action waiver outside of the arbitration context.

Thus, the Sixth Circuit concluded that, in the absence of a valid arbitration agreement, a collective action waiver is unenforceable because there is no countervailing federal policy (i.e. the FAA) that outweighs the remedial policy articulated in the FLSA:

Because no arbitration agreement is present in the case before us, we find no countervailing federal policy that outweighs the policy articulated in the FLSA. The rationale of Boaz is therefore controlling. Boaz is based on the general principle of striking down restrictions on the employees’ FLSA rights that would have the effect of granting their employer an unfair advantage over its competitors. Requiring an employee to litigate on an individual basis grants the employer the same type of competitive advantage as did shortening the period to bring a claim in Boaz. And in cases where each individual claim is small, having to litigate on an individual basis would likely discourage the employee from bringing a claim for overtime wages. Boaz therefore controls the result here where arbitration is not a part of the waiver provision.

Click Killion v. KeHE Distributors, LLC to read the Sixth Circuit’s decision.

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N.D.Ala.: Arbitration Agreements Obtained By Defendant in Required Meetings After Putative Collective Commenced Unenforceable

Billingsley v. Citi Trends, Inc.

This case was before the court following the court’s order prohibiting enforcement of arbitration agreements that the defendant obtained from opt-ins (prior to the time they opted in to the case). The court previously had ruled that such arbitration agreements were unenforceable, because of the manner in which they were obtained from current employees, following an evidentiary hearing regarding same. This case is particularly important because it addresses the common situation in which a defendant-employer, at least arguably, crosses the line from attempting to mount a defense to a potential collective/class action, and begins to improperly exercise its unequal power over its current employees/putative class members. Denying the defendant’s motion for reconsideration, the court expanded on the reasoning of its prior order.

As the court explained:

This Fair Labor Standards Act case presents the court with a dilemma: enforce arbitration agreements against Defendant Citi Trends Store Managers, who are potential opt-in Plaintiffs in this collective action that were obtained during the conditional certification stage of this case and gut the collective action mechanism Congress provided for the protection of employees or refuse to enforce the arbitration agreements and run afoul of the federal policy favoring their enforcement. Because of the particular events surrounding the roll-out of the arbitration agreement in this case, as specifically discussed below, the court finds it cannot approve employer conduct like that involved in this case specifically targeting only potential class members during a critical juncture in this case with the definite goal of undercutting the Congressional intent behind the collective action process. The court will DENY the Defendant’s motion to compel arbitration and preserve the viability of the collective action mechanism.

Summarizing the parties’ respective contentions, the court explained:

Defendant Citi Trends, Inc. argues that this court’s ruling at the January 2013 hearing that it could not seek to compel arbitration against those opt-in Plaintiffs who signed mandatory arbitration agreements was an error of law. The Plaintiffs argue that the court’s ruling was appropriate and necessary to correct Citi Trends’s wrongful action—intimidating its employees into waiving their rights to join this lawsuit by signing mandatory arbitration agreements. On April 19, 2013, the court granted the motion to reconsider its ruling and set an evidentiary hearing to hear evidence surrounding presentment of the arbitration agreements to determine if any coercion, duress, or intimidation occurred.

While the court had previously denied the plaintiff’s motion for protective order and/or to strike declarations obtained from current employees, that was not the end of its inquiry as to whether the arbitration agreements should be enforced. Rather, the court held an evidentiary hearing because the

high standard had not been met on the parties’ submission alone, and thus, the court decided it needed to hold a hearing to determine if any coercion, duress, intimidation, or other abusive conduct occurred at the time SMs were required to sign the Agreement. The question of enforcement of or invalidation of the Agreement invokes a different standard than did the motion to strike or to enter a protective order, which was the requested relief before the court previously.

The court summarized the evidence received at the hearing as follows:

At the evidentiary hearing on May 14 and 15, 2013, the court heard testimony from opt-in Plaintiffs Roilisa Prevo and Katina Alfred, former Citi Trends SMs; Ivy Council, Executive Vice President of Human Resources for Citi Trends; Rashad Luckett, Human Resources Coordinator for Citi Trends; Vanessa Davis, Director of Human Resources for Citi Trends; and LaKesha Wilkins, an “independent third party witness” hired by Citi Trends to sit in SM meetings with Ms. Davis. The court will briefly summarize that testimony here but will also reference it as needed in the discussion below.

Citi Trends devised and implemented its new ADR policy in the late spring and early summer of 2012—shortly after it was served with the complaint on February 27, 2012 (doc. 6), and after the court on May 16, 2012, set a scheduling conference for May 31, 2012. (Doc. 17). On May 31, 2012, this court issued a Scheduling Order requiring the Plaintiffs to file their motion for conditional certification of the class on or before July 31, 2012 with briefing to be completed by September 10, 2012. (Doc. 18). Just a couple weeks after the Order, in mid-June, Citi Trends began the process of rolling out its new Alternative Dispute Resolution (“ADR”) plan, including the mandatory Agreement. Ms. Davis testified that as of mid-June she had virtually completed the new employee handbook she was working on, which did not include an ADR policy; she learned for the first time in mid-June that the updated handbook would include the new ADR policy. Citi Trends, under the direction of Ms. Council, sent Ms. Davis, Mr. Luckett, and other HR representatives to have two-on-one private meetings with SMs across the country as early as June 30, 2012 to roll out the new ADR policy. The HR representatives met with all SMs individually throughout the summer.

District Managers (“DMs”) told the SMs that they must attend the meetings that concerned the issuance of a new employee handbook. DMs were only asked to sign the Agreement if the HR Representatives happened to see them at the SM meetings, but Citi Trends distributed the Agreement to DMs, other corporate employees, and store associates at a later date.

When the SMs arrived at the meetings, they were greeted by an HR Representative and another individual, who Ms. Prevo claimed was never introduced to her and whom Ms. Alfred identified as another Citi Trends corporate employee. The HR Representatives gave the SMs four documents: the SM Disclosure, the Agreement, the SM Declaration, and a photocopied version of a new employee handbook. The two-on-one private meetings took place in small, back rooms in Citi Trends retail stores, the same places where interrogations or investigations of employees occurred. The HR Representatives who met with the SMs played an advisory role in the employment decisions of Citi Trends employees, and both Ms. Prevo and Ms. Alfred testified that they believed the HR representatives conducting the meetings had authority to make employment decisions about them, such as hiring and firing.

Ms. Alfred and Ms. Prevo testified that they signed the documents but came away from those meetings having felt intimidated by the HR Representatives and pressured to sign the Agreement or lose their jobs. The SMs were not given copies of the documents they signed at the meeting or at anytime afterward, even if they specifically requested copies.

After finding the agreements at issue to be both procedurally and substantively unconscionable, the court weighed the related public policy concerns as well:

The biggest public policy concern that the court has to consider about actions of Citi Trends, however, is the effect of the Defendant’s efforts on the purpose of an FLSA collective action. The court’s decision on this issue is bigger than this one case, and that concern is what has plagued the court about this situation from the first mention of the Agreement. The purposes of the FLSA and its collective action procedure factor into the court’s decision on this motion.

Congress passed the FLSA during the Great Depression to protect workers from overbearing practices of employers with greatly unequal bargaining power over them. See Roland Elec. Co. v. Walling, 326 U.S. 657, 668 n. 5 (1946) ( “The Bill was introduced May 24, 1937, [and] … accompanied by a Presidential message by Franklin D. Roosevelt …. ‘to protect the fundamental interests of free labor and a free people we propose that only goods which have been produced under conditions which meet the minimum standards of free labor shall be admitted to interstate commerce. Goods produced under conditions which do not meet rudimentary standards of decency should be contraband and ought not to be allowed to pollute the channels of interstate trade.’ “) (quoting 81 Cong. Rec. 4960, 4961). To further that purpose, § 216(b) of the FLSA authorizes an employee to file suit for and on behalf of himself and others similarly situated. See 29 U.S.C. § 216(b). Those employees who wish to join the lawsuit must give written consent or opt-in to the lawsuit, but they only know that they can do so once court-approved notice has been sent to them. See id…

In this case, the court finds that such goals are defeated if the court approves actions taken by defendants, such as those taken by Citi Trends in this case, that are designed and used to prevent employees from vindicating their rights in an FLSA collective action. The court wishes to make clear that it is not addressing a pre-lawsuit or pre-employment arbitration agreement between an employer and employee that would preclude participation in a collective action. Instead, this ruling only addresses the Agreement in this case that was presented to the specifically-targeted potential class of employees in the specific manner that gave those potential opt-in Plaintiffs no meaningful choice or known opportunity to refuse to sign without the fear of termination in a setting that was ripe for and calculated to produce perceived intimidation or coercion and when its very purpose and effect was to preclude participation in this lawsuit.

For these reasons, the court finds that the Agreement at issue in this case reeks of both procedural and substantive unconscionability in the context in which it was presented and obtained. The Agreement cannot and will not be enforced against Ms. Prevo, Ms. Alfred, or Ms. Cunningham, and the court will DENY Citi Trends’s motion to compel arbitration against them. In making this decision, the court notes that it found the testimony presented by the Defendant, specifically that from Ms. Council and Ms. Davis, particularly enlightening. In addition to the language of the documents themselves, the court finds that the concurrent timing of the ADR roll-out and the Plaintiffs’ preparation of the motion for conditional certification and court approved notice, and the manner in which the Agreement was presented weigh in favor of invalidating the Agreement as it relates to the SMs who were presented the Agreement during its initial roll-out in the summer of 2012.

The court truly believes it would be a derogation of the court’s responsibility if it were to approve employer conduct like that in this case that specifically undercuts the Congressional intent behind creating the FLSA collective action process for aggrieved employees, and the court does not take such action lightly.

In light of this reasoning, the court denied the defendant’s motion for reconsideration and held that the arbitration agreements, obtained from current employees were unenforceable.

Click Billingsley v. Citi Trends, Inc. to read the entire Memorandum Opinion.

A review of the docket shows that the defendant has filed an appeal to the Eleventh Circuit.  Thus, this issue will likely get further review.  Stay tuned for further developments….

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U.S.S.C.: Arbitration Agreement “Silent” as to Class Actions Allows For Same

Oxford Health Plans LLC v. Sutter

Although not an FLSA case, this case has far ranging effects throughout the litigation and arbitration worlds. The issue presented to the Court was whether an arbitrator exceeded his authority by rendering a clause construction of the parties’ arbitration agreement that permitted class arbitration, where the parties’ arbitration agreement was silent on its face as to the issue. The Court held that the arbitrator did not exceed his authority and, as the Third Circuit had prior, affirmed the District Court’s opinion upholding the arbitrator’s clause construction permitting class arbitration, because it was a well-reasoned opinion and the parties’ had explicitly asked the arbitrator to render a clause construction. In so doing, the Supreme Court distinguished this case from its prior case Stolt-Nielsen explaining that:

[ ] Oxford misreads Stolt-Nielsen: We overturned the arbitral decision there because it lacked any contractual basis for ordering class procedures, not because it lacked,in Oxford’s terminology, a “sufficient” one. The parties in Stolt-Nielsen had entered into an unusual stipulation that they had never reached an agreement on class arbitration. See 559 U. S., at 668–669, 673. In that circumstance, we noted, the panel’s decision was not—indeed, could not have been—”based on a determination regarding the parties’ intent.” Id.,at 673, n. 4; see id., at 676 (“Th[e] stipulation left no room for an inquiry regarding the parties’ intent”). Nor, we continued, did the panel attempt toascertain whether federal or state law established a “default rule” to take effect absent an agreement. Id., at 673. Instead, “the panel simply imposed its own conception of sound policy” when it ordered class proceedings. Id.,at 675. But “the task of an arbitrator,” we stated, “is to interpret and enforce a contract, not to make public policy.” Id.,at 672. In “impos[ing] its own policy choice,” the panel “thus exceeded its powers.” Id., at 677.

The contrast with this case is stark. In Stolt-Nielsen, the arbitrators did not construe the parties’ contract, and did not identify any agreement authorizing class proceedings. So in setting aside the arbitrators’ decision, we found not that they had misinterpreted the contract, but that they had abandoned their interpretive role. Here, the arbitrator did construe the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration. So to overturn his decision, we would have to rely on a finding that he misapprehended the parties’ intent. But §10(a)(4) bars that course: It permits courts to vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly. Stolt-Nielsen and this case thus fall on opposite sides of the line that §10(a)(4) draws to delimit judicial review of arbitral decisions.

While the unanimous decision supports the idea that class arbitration is permissible where the parties’ agreement is silent on its face, as with its prior decisions on class arbitration issues, the decision also leaves many related issues unresolved.

Click Oxford Health Plans LLC v. Sutter to read the Court’s opinion and Justice Alito’s concurring opinion.

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D.Idaho: Collective Action Waiver Unenforceable Under Section 7, Because It Would Prevent Employees “from Asserting a Substantive Right Critical to National Labor Policy”

Brown v. Citicorp Credit Services, Inc.

This case was before the court on the defendant’s motion to compel arbitration and dismiss the plaintiffs operative (second amended) complaint. Of significance, joining several recent courts, the court considered the effect of the NLRA’s Section 7, as it relates to a purported waiver of employees’ rights to proceed under the FLSA’s collective action mechanism. Reasoning that a waiver of the right to proceed as a collective action basis, “bars [plaintiff] from asserting a substantive right that is critical to national labor policy,” the court held that same was unenforceable.

Discussing prior precedent and explaining that same failed to consider the argument that the NLRA forbids such a waiver the court explained:

Several Circuits have cited the dicta in Gilmer to uphold waivers of the FLSA’s collective action rights—these Circuits hold that the waiver affects only the employee’s procedural right to bring a collective action, not his substantive right to seek recovery under the FLSA for himself, and thus the waiver is valid. Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1378 (11th Cir.2005); Carter v. Countrywide Credit Industries, Inc., 362 F.3d 294, 298 (5th Cir.2004); Adkins v. Labor Ready, Inc., 303 F.3d 496, 503 (4th Cir.2002). The Ninth Circuit has reached the same result but in an unpublished decision that cannot be cited for any purpose.

These cases did not address, however, the issue of whether a waiver of FLSA collective action rights violates the National Labor Relations Act (NLRA). Section 7 of the NLRA vests in employees the right “to engage in … concerted activities for the purpose of … mutual aid or protection.” 29 U.S.C. § 157. The right to engage in concerted action for “mutual aid or protection” includes employees’ efforts to “improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee-employer relationship.” Eastex, Inc. v. NLRB, 437 U.S. 556, 565–566, 98 S.Ct. 2505, 57 L.Ed.2d 428 (1978). Those “channels’ include lawsuits. See Brady v. National Football League, 644 F.3d 661, 673 (8th Cir.2011) (holding that “a lawsuit filed in good faith by a group of employees to achieve more favorable terms or conditions of employment is ‘concerted activity’ under 29 U.S.C. § 157“).

The National Labor Relations Board has recently held that an employee’s lawsuit seeking a collective action under the FLSA is “concerted action” protected by Section 7 of the NLRA. In re D.R. Horton, Inc., 2012 WL 36274 (N.L.R.B. Jan.3, 2012). Although some Section 7 rights can be waived by a union acting on behalf of employees, see Metro. Edison Co. v. NLRB, 460 U.S. 693, 707–08, 103 S.Ct. 1467, 75 L.Ed.2d 387 (1983), it is unlawful for the employer to condition employment on the waiver of employees’ Section 7 rights. Retlaw Broadcasting Co. v. NLRB, 53 F.3d 1002 (9th Cir.1995). That is precisely what Brown alleges happened here.

Under Chevron USA, Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), the Court must defer to the Board’s interpretation of the NLRA if its interpretation is rational and consistent with the Act. Local Joint Executive Bd. of Las Vegas v. NLRB, 657 F.3d 865, 870 (9th Cir.2011). The Board’s interpretation in Horton of Section 7 of the NLRA is rational and consistent with the Act: A collective action seeking recovery of wages for off-the-clock work falls easily within the language of Section 7 protecting “concerted action” brought for the “mutual aid and protection” of the employees.

Holding that it had the power to invalidate the waiver, and doing so, the court reasoned:

Thus, Citicorp’s arbitration agreement waives Brown’s Section 7 rights to bring an FLSA collective action. As discussed, an arbitration agreement may, by the terms of the FAA, be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” See 9 U.S.C. § 2. Do legal grounds exist to revoke an agreement to waive Section 7 rights?

Section 7 rights are protected “not for their own sake but as an instrument of the national labor policy.” Emporium Capwell Co. v. W. Addition Cmty. Org., 420 U.S. 50, 62, 95 S.Ct. 977, 43 L.Ed.2d 12 (1975). Thus, Citicorp’s arbitration agreement does more than merely waive Brown’s right to a procedural remedy; it bars her from asserting a substantive right that is critical to national labor policy. A contract that violates public policy must not be enforced. See United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 42, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987) (citing the “general doctrine, rooted in the common law, that a court may refuse to enforce contracts that violate law or public policy”). Moreover, it is unlawful for the employer to condition employment on the waiver of employees’ Section 7 rights. Retlaw Broadcasting Co. v. NLRB, 53 F.3d 1002 (9th Cir.1995).

For these reasons, the Court finds that under the FAA, there are legal grounds to revoke the arbitration agreement’s waiver of Brown’s right to bring a collective action under the FLSA and a class action under the IWCA. Accordingly, the Court will deny Citicorp’s motion to compel arbitration and to dismiss Brown’s claims.

Given the lack of clarity on this issue (see, e.g., here), and the fact that courts continue to come down on opposite sides of it, this issue is likely to end up at the Supreme Court at some point in the relatively near future. However, this case was certainly a win for employees in the ongoing battle.  Stay tuned for further developments.

Click Brown v. Citicorp Credit Services, Inc. to read the entire Memorandum Decision and Order.

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8th Cir.: NLRB’s Holding in D.R. Horton Does Not Preclude Enforcement of FLSA Class/Collective Action Waiver

Owen v. Bristol Care, Inc.

While district courts that have considered the issue since the NLRB handed down its decision in D.R. Horton last year have reached divergent opinions on its effect regarding the enforceability of class waivers, the first circuit to consider the issue has rejected D.R. Horton’s applicability in the FLSA context. By way of background, last year the NLRB held that the existence of a collective action waiver in an employment agreement constituted an unfair labor practice, because it improperly restricted the “concerted activity” of employees who are subject to same. Following the decision, courts have reached different conclusions as to whether the NLRB’s decision necessarily rendered such waivers unenforceable in the context of FLSA collective action waivers. In this case, the district court held that the parties arbitration agreement was unenforceable, because it contained such a waiver. However, on appeal, the Eight Circuit reversed, holding that the NLRB’s decision in D.R. Horton did not render the arbitration agreement at issue unenforceable.

Discussing this issue, the Eight Circuit opined that it was not obligated to defer to the National Labor Relations Board’s interpretation of Supreme Court precedent, under Chevron or any other principle:

Finally, in arguing that there is an inherent conflict between the FLSA and the FAA, Owen relies on the NLRB’s recent decision in D.R. Horton, which held a class waiver unenforceable in a similar FLSA challenge based on the NLRB’s conclusion that such a waiver conflicted with the rights protected by Section 7 of the NLRA. 2012 WL 36274, at *2. The NLRB stated that Section 7’s protections of employees’ right to pursue workplace grievances through concerted action includes the right to proceed as a class.   Id. However, D.R. Horton carries little persuasive authority in the circumstances presented here. First, the NLRB limited its holding to arbitration agreements barring all protected concerted action. Id. at *16. In contrast, the MAA does not preclude an employee from filing a complaint with an administrative agency such as the Department of Labor (which has jurisdiction over FLSA claims, see 29 U.S.C. § 204), the Equal Employment Opportunity Commission, the NLRB, or any similar administrative body. Cf. Gilmer, 500 U.S. at 28, 111 S.Ct. 1647 (upholding an arbitration agreement that allowed Age Discrimination in Employment Act claimants to pursue their claims before the Equal Employment Opportunity Commission). Further, nothing in the MAA precludes any of these agencies from investigating and, if necessary, filing suit on behalf of a class of employees. Second, even if D.R. Horton addressed the more limited type of class waiver present here, we still would owe no deference to its reasoning. Delock v. Securitas Sec. Servs. USA, –––F.Supp.2d ––––, ––––, No. 4:11–CV–520–DPM, 2012 WL 3150391 (E.D.Ark. Aug. 1, 2012), at *3 (“The Board’s construction of the [NLRA] ‘is entitled to considerable deference and must be upheld if it is reasonable and consistent with the policies of the Act,’ … the Board has no special competence or experience in interpreting the Federal Arbitration Act.” (quoting St. John’s Mercy Health Sys. v. NLRB, 436 F.3d 843, 846 (8th Cir.2006))). The NLRB also attempted to distinguish its conclusion from pro-arbitration Supreme Court decisions such as Concepcion.  D.R. Horton, 2012 WL 36274, at *16. This court, however, is “not obligated to defer to [the Board’s] interpretation of Supreme Court precedent under Chevron or any other principle.” Delock, –––F.Supp.2d at ––––, 2012 WL 3150391, at *3 (quoting N.Y. N.Y. LLC v. NLRB, 313 F.3d 585, 590 (D.C.Cir.2002)). Additionally, although no court of appeals has addressed D.R. Horton, nearly all of the district courts to consider the decision have declined to follow it.

The court also opined that there is nothing inherently wrong with a collective action waiver in employment agreements.

Click Owen v. Bristol Care, Inc. to read the entire Opinion.

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Respondent-Employer Enjoined From Requiring Current Employee Putative Class Members From Waiving Right to Participate in Class/Collective Action, Once Putative Class/Collective Action Pending

Herrington v. Waterstone Mortgage Corp.

In this case, the claimant-employees had initially filed their case as a class/collective action in federal court. Pursuant to arbitration agreements that the plaintiffs had signed during their employment, the defendant successfully moved to compel the plaintiffs to pursue their claims in arbitration. Because the arbitration agreement at issue called for arbitration pursuant to the American Arbitration Association’s (AAA) rules governing arbitration, the plaintiffs successfully argued that a Rule 23 type opt-out mechanism rather than 216(b)’s opt-in governed as the appropriate class mechanism. Twelve (12) days after the arbitrator’s holding that an opt-out class procedure would govern, the defendant began requiring all current employees to sign a new arbitration clause, which if enforced, would have precluded the current employees from participating in the putative class action, yet to be certified. Arguing that the respondent-employer’s unilateral effort to defeat putative class members’ participation in the arbitration required thorough remedial measures, the claimant-employees moved for a protective order and temporary restraining order to:

(1) Enjoin any further dissemination of the letter to current employees with the class-waiver form; (2) Enjoin any effort by the respondent-employer or its counsel to chill participation in the case, including prohibiting any further unauthorized communication with any class members concerning joining the case, except as approved by the arbitrator; (3) Enjoin retaliation by [Waterstone] against any individual participating in the case; (4) Direct that [Waterstone] (in a form and manner supervised by the Arbitrator or on consent of claimants’ counsel) promptly notify all class members who received Exhibits A and B of the impropriety of [Waterstone’s] acts and the invalidity of the waivers it solicited; (5) Sanction [Waterstone] with monetary relief for its improper behavior [ ] so that [Waterstone] does not achieve any of the benefit of chilling individuals from participating in this case; (6) Reserve the opportunity for individuals to join the case post-judgment, should they opt-out now, given their employer’s clear statement of its desire that they not join this case; (7) Award Claimant’s costs and attorneys’ fees for the time spent on the motion; [and] (8) Award such further relief in the future, as may become necessary to remedy the ill effects of [Waterstone’s] improper behavior.

In opposition, the respondent-employer argued that the motion should be denied because: (1) the arbitrator lacked jurisdiction over the issue presented, because the parties had not agreed to arbitrate the issue of the permissibility of the subsequent class-waivers; (2) it was procedurally improper, because a class or collective action had yet to be certified; and (3) the employees had not demonstrated the requisite irreparable harm to warrant the relief sought.

Initially, the arbitrator rejected the respondent-employer’s jurisdictional argument:

It is true that a class has not yet been certified. Indeed, the clause-construction award that contemplates a class arbitration may itself be vacated by the District Court. However, even if the motion to certify a class should be denied, or if the Court should vacate the clause-construction award, the arbitration may continue as a collective proceeding (opt in) as a result of Judge Crabb’s direction that Herrington “must be allowed to join other employees to her case.” (D. Ct. Decn. at 18).

The arbitrator similarly rejected the argument that the relief sought was premature:

Whether a proceeding continues as a class procedure or a collective procedure, it must be protected from coercive or misleading communications that are designed to, or have the effect of, persuading or intimidating potential claimants to withhold their participations. The law realistically recognizes that such improper communications may be just as effective pre-certification as post-certification. Therefore, it is within the jurisdiction – indeed, it is the duty – of the judge or arbitrator before whom such a proceeding is pending to protect the integrity of the proceeding and to require that all information conveyed by the parties to potential class members about the proceeding be accurate, not coercive, and not misleading.

Waterstone’s argument that control over communications cannot arise until a class is certified is simply wrong. The power (jurisdiction) to control the parties’ communications to class members or putative class members can arise at least as early as when the initial pleading is filed. See, e.g. Hoffman-LaRoche at 487 (“[I]t lies within the discretion of a district court to begin its involvement early at the point of the initial notice.”).

The arbitrator added:

Waterstone’s contention that it has “has never consented to arbitrate its management decisions as to the nature and form of employment agreements with employees who are not parties to this case” (Jurisd. Memo at 1) assumes that this arbitration is about what kind of dispute resolution provision going forward Waterstone may provide in its form employment agreement. The assumption is false. Herrington brought this arbitration to recover past minimum wages and overtime compensation allegedly due to her and to her fellow employees. Jurisdiction over that claim was established with the filing of the demand for arbitration, and it is the duty of the arbitrator to preserve and protect the integrity of the proceedings with respect to that claim. The entire dispute that is subject to this arbitration is therefore to be resolved under the dispute resolution provisions of the pre-Amendment employment agreement that governs Herrington’s claims.

Instead, the arbitrator held that once the proceeding had commenced, the employer-respondent could not require the potential class members to waive their rights to participate in the case, as members of the class:

However, whatever may be the legality or enforceability of either Option A or Option B in future disputes that might arise between Waterstone and its mortgage-loan employees, those amendments can have no impact on this Herrington arbitration or on the employee class’s rights or choices in it. Once Herrington commenced her arbitration under the original arbitration clause in the employment agreement, Waterstone could not change the nature or course of this pending arbitration by requiring the putative claimants in this proceeding to agree to an entirely different dispute-resolution regime. This arbitration must, therefore, continue under the Agreement that governed when it was commenced, the Agreement that Waterstone, itself, argued successfully to the District Court requires Herrington’s dispute to be arbitrated.

Thus, the arbitrator granted the claimant-employees’ their requested relief.

Click Herrington v. Waterstone Mortgage Corp. to read the entire Decision and Order on Claimant’s Application for Protective Order, Temporary Restraining Order and Preliminary Injunction.

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Filed under Arbitration, Class Waivers, Collective Actions, Pre-Certification Communications

W.D.Wisc.: Loan Officers Compelled to Arbitrate FLSA Claims, But Class Waiver Stricken In Light of D.R. Horton

Herrington v. Waterstone Mortgage Corp.

In  this  proposed  collective  action,  the plaintiff sought to pursue a collective action on behalf of defendant’s loan officers, seeking unpaid overtime wages under the FLSA.  As discussed here, the defendant moved to to dismiss or stay the case on the ground that plaintiff’s claims were subject to an arbitration agreement.  Significantly, while the court enforced the arbitration agreement and remanded the case to arbitration, it struck the purported class waiver portion of the arbitration agreement in light of the recent holding in In  re D.R. Horton, Inc.

The specific language at issue was the following language from the parties’ agreement to arbitrate:

“[A]ny  dispute  between  the  parties  concerning  the  wages,  hours,  working conditions,  terms,  rights,  responsibilities  or  obligations  between  them  or arising out of their employment relationship shall be  resolved  through binding arbitration  in  accordance  with  the  rules  of  the  American  Arbitration Association applicable to employment claims.  Such arbitration may not be joined with or  join or  include any claims by any persons not party to  this Agreement.  Except as otherwise set forth herein, the parties will share equally in the cost of arbitration.”

After discussing a litany of cases from the NLRB holding that claims for unpaid wages by workers represent concerted activity, the court discussed the ramifications of the recent D.R. Horton case and held that the class action waiver here was unenforceable. In so doing the court addressed and rejected defendant’s arguments as to why D.R. Horton should not be applied to the case. Specifically, the court rejected defendant’s arguments that: (1) D.R. Horton (and the NLRA) only protect “employees,” and not “former employees” such as plaintiff; (2) an employee can bring about the same changes in the workplace pursuing an individual claim as he or she can pursuing a claim collectively with other employees; and (3) D.R. Horton impermissibly conflicts with AT&T Mobility  LLC  v. Concepcion.

However, because the court held that the class waiver provision was severable from the arbitration agreement, the court severed the waiver and remanded the case to arbitration, potentially as a collective action.

Click Herrington v. Waterstone Mortgage Corp. to read the entire Opinion and Order.

Thanks to Dan Getman for the heads up on this recent decision.

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Filed under Arbitration, Class Waivers, Collective Actions