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11th Cir.: District Court Correctly Refused to Enforce Arbitration Agreement Obtained From Putative Class Members With Motion for Conditional Cert Pending
Employers seem to getting increasingly aggressive with class waivers, arbitration agreements in the wake of recent high court rulings which are seemingly boundless. In the wake of these recent decisions, some employers—who previously did not include waivers or arbitration agreements in their employment agreements—are seeking to play catch up. Troublingly, we seem to be seeing more and more situations where employers, facing the prospect of class/collective actions based on their often willful violations of wage and hour laws are attempting to force arbitration agreements on their employees in an effort to blunt efforts by their employees to recover their rightful wages. However, most courts faced with such situations have invalidated these improperly obtained arbitration clauses, recognizing that employers are in a position to exert undue pressure on employees fearful for their jobs, and that such arbitration “agreements” are frequently anything but an agreement between two parties consenting to arbitration of their own will.
In a recent decision, the Eleventh Circuit was called upon to review one such decision by a district court (first discussed here) that held such a forced arbitration clause to be invalid, and affirmed the district court’s order denying the defendant’s motion to enforce arbitration under the agreements at issue.
Laying out the salient facts of the case, the court explained:
To support its order denying Citi Trends’s motion to compel arbitration, the district court made the following findings of fact:
Citi Trends devised and implemented a new alternative dispute resolution (“ADR”) policy in the late spring and early summer of 2012—after it was served with the complaint in this action on February 27, 2012, and after the district court set a scheduling conference for May 31, 2012. Weeks after the district court’s May 31, 2012 scheduling order, Citi Trends began to roll out its new ADR policy. The ADR policy included a mandatory agreement to arbitrate all disputes individually rather than collectively.
By June 30, 2012, Citi Trends sent its human resource representatives to meet with store managers to roll out the new ADR policy—but only to putative collective action members (i.e., store managers). Throughout the summer, Citi Trends’s human resource representatives met individually with all store managers across the country. Citi Trends had two employees in each ADR meeting: a human resources representative and a “witness.”
The human resources representative who met with the store managers advised Citi Trends in its employment decisions. Thus, the store managers reasonably believed the human resources representative had authority to make or influence employment decisions, including hiring and firing decisions.
Store managers were ordered to attend the ADR meetings by their supervisors. Citi Trends did not inform the store managers of the true purpose of the mandatory meetings. Instead of telling the store managers that the meetings concerned the company’s new ADR policy, Citi Trends told the store managers that the mandatory meetings concerned the issuance of a new employee handbook.
Typically, Citi Trends rolled out its new employee handbook in a group setting. The handbook was generally provided in printed form (i.e., not as a photocopy), and the employees were required to sign for the handbook. Here, however, Citi Trends did not follow any of its general procedures for rolling out the employee handbook. Instead, Citi Trends (1) held two-on-one private meetings with each store manager in a small, back room in Citi Trends retail stores—the same places where the store interrogated or investigated its employees, (2) discussed only the ADR policy and the fill-in-the-blank declarations related to the store managers’ job duties, (3) provided photocopied versions of the employee handbooks as the store managers left the meetings, and (4) did not require the store managers to sign for the photocopied employee handbook.FN6 The district court found that this rushed and atypical rollout of the employee handbook demonstrated that Citi Trends’s handbook rollout was “pretext for presenting the [arbitration] Agreement to the [store managers] to derail their participation in this lawsuit.”
When a store manager arrived at the back-room meetings, a human resources representative greeted the store manager. A second individual was also at each meeting; however, this person was not introduced to, or known by, the store managers.
At the meetings, Citi Trends’s human resources representative gave the store managers these documents: the arbitration agreement, a fill-in-the-blank declaration, and the store manager disclosure. The store managers were asked to sign each of these documents at the meeting.
Citi Trends informed the store managers that the arbitration agreement was a condition of continued employment. The store managers understood that they would be fired if they did not assent to the arbitration agreement or the new ADR policy. Thus, the store managers lacked meaningful choice in whether to sign the arbitration agreements or other documents. The district court found the setting of the back-room meetings to be a “highly coercive” and “interrogation-like.”
Opt-in plaintiffs testified that they signed the documents but felt intimidated by the human resources representative. They also felt pressured to sign the arbitration agreements to avoid losing their jobs. Even when specifically requested, Citi Trends did not give the store managers copies of the documents that the store managers signed.
The district court found that Citi Trends did not conceive or begin to institute its ADR policy until after the district court held a scheduling conference to determine when and how Billingsley must move for conditional certification. Citi Trends then rolled out its ADR policy in a “blitzkrieg fashion” and only required potential members of this collective action to agree to the ADR policy. The district court found that Citi Trend’s “ADR roll-out was a hurried reaction specifically targeted at curtailing this litigation.”
The district court found that the “purpose and effect” of the arbitration agreement was “to protect Citi Trends in this lawsuit.” The district court also found that the timing of the arbitration agreement’s rollout “was calculated to reduce or eliminate the number of collective action opt-in Plaintiffs in this case” and the rollout was “replete with deceit” and “designed to be[ ] intimidating and coercive.”
After a discussion of the FLSA, its remedial purpose and the broad discretion afforded to courts in managing collective actions, the Eleventh Circuit held that that the district court properly exercised its broad discretion in denying the defendant’s motion to compel arbitration, because such a denial was in line with the court’s responsibilities to manage communications between the parties and putative class members. Specifically, the court reasoned:
Given the “broad authority” that the district court has to manage parties and counsel in an FLSA collective action, the district court did not abuse its discretion in determining that Citi Trends’s conduct in the summer of 2012 undermined the court’s authority to manage the collective action. Nor did the district abuse its discretion in determining that—to correct the effect of Citi Trends’s misconduct—it would allow putative collective action members to join the lawsuit notwithstanding their coerced signing of the arbitration agreements.
Whatever right Citi Trends may have had to ask its employees to agree to arbitrate, the district court found that its effort in the summer of 2012 was confusing, misleading, coercive, and clearly designed to thwart unfairly the right of its store managers to make an informed choice as to whether to participate in this FLSA collective action. Since the arbitration agreements by their terms will directly affect this lawsuit, the district court had authority to prevent abuse and to enter appropriate orders governing the conduct of counsel and the parties. See Hoffmann–La Roche, 493 U.S. at 171, 110 S.Ct. at 486–87; see also Kleiner, 751 F.2d at 1203 (class action).
The district court simply did what other district courts routinely do: exercise discretion to correct the effects of pre-certification communications with potential FLSA collective action members after misleading, coercive, or improper communications are made. See, e.g., Balasanyan v. Nordstrom, Inc., No. 11–CV2609–JM–WMC, 2012 WL 760566, at * 1–2, 4 (S.D.Cal. Mar.8, 2012) (refusing to enforce individual arbitration agreement in an FLSA action because the defendant’s imposition of the agreement was an improper class communication); Williams v. Securitas Sec. Servs. USA, Inc., No. 10–7181, 2011 U.S. Dist. LEXIS 75502, at *8–12 (E.D.Pa. July 13, 2011) (invalidating arbitration agreement imposed on the defendant’s employees during pre-certification stage of FLSA litigation and ordering corrective measures because the arbitration agreement was a “confusing and unfair communication” with the potential opt-in plaintiffs); Ojeda–Sanchez v. Bland Farms, 600 F.Supp.2d 1373, 1379–81 (S.D.Ga.2009) (granting a limited protective order in FLSA collective action where the defendants engaged in unsupervised, unsolicited, in-person interviews of the plaintiffs in an environment that encouraged speedy and uninformed decision-making); Longcrier v. HL–A Co., 595 F.Supp.2d 1218, 1229–30 (S.D.Ala.2008) (striking declarations obtained through the defendants’ abusive and misleading communications with prospective opt-in plaintiffs); Jones v. Casey’s Gen. Stores, 517 F.Supp.2d 1080, 1086, 1089 (S.D.Iowa 2007) (limiting the plaintiffs’ counsel from affirmatively soliciting potential opt-in plaintiffs to join the FLSA action and requiring counsel to modify their website to provide “only a factual, accurate, and balanced outline of the proceedings”); Maddox v. Knowledge Learning Corp., 499 F.Supp.2d 1338, 1342–44 (N.D.Ga.2007) (observing that district courts in § 216(b) actions rely on broad case management discretion by limiting misleading, pre-certification communications and exercising that discretion in the case before the court by ordering the plaintiffs to correct false, unbalanced, and misleading statements on their website); Belt v. Emcare, Inc., 299 F.Supp.2d 664, 667–70 (E.D.Tex.2003) (sanctioning the employer and enjoining the employer from communicating ex parte with potential class action members because the employer intentionally attempted to subvert the district court’s role in the FLSA collective action by unilaterally sending a misleading and coercive letter to potential plaintiffs that encouraged those persons not to join).
District courts’ corrective actions have included refusal to enforce arbitration agreements instituted through improper means and where the timing of the execution of those agreements was similar to the post-filing, pre-certification timing in this case. See, e.g., Balasanyan, 2012 WL 760566, at * 1–2; Williams, 2011 U.S. Dist. LEXIS 75502, at *8–12; see also In re Currency Conversion Fee Antitrust Litig., 361 F.Supp.2d at 252–54 (imposing similar corrective action in Rule 23 class action).
The district court did not abuse its discretion in correcting the effects of Citi Trends’s improper behavior in this case. The district court held an initial hearing, after which it denied Citi Trends’s motion to compel arbitration. The court then reconsidered its order, held an additional two-day evidentiary hearing, made specific and detailed findings of fact that were supported by the record, and took minimal action to correct the effects of Citi Trends’s conduct.
The district court limited its order temporally and substantively. The district court limited its order to those agreements signed under the coercive conditions used by Citi Trends in the summer of 2012. And, the district court limited its order to this particular FLSA action. The court specifically said that it was not ruling on the enforceability of the arbitration agreements as they relate to other cases or controversies. The district did not restrict Citi Trends from entering into new arbitration agreements with the store managers; nor did the court prevent store managers from electing to comply with the terms of the arbitration agreements that they signed in the summer of 2012.
The district court’s limited remedial action is not an abuse of its considerable discretion to manage this collective action. Accord Kleiner, 751 F.2d at 1203 (holding that a district court’s power to manage a class action included the power to prohibit a defendant from making “unsupervised, unilateral communications with the plaintiff class”). That is especially true given the opt-in nature of FLSA collective actions. Because FLSA plaintiffs must opt-in, unsupervised, unilateral communications with those potential plaintiffs can sabotage the goal of the FLSA’s informed consent requirement by planting the slightest seed of doubt or worry through the one-sided, unrebutted presentation of “facts.” Because the damage from misstatements could well be irreparable, the district court must be able to exercise its discretion to attempt to correct the effects of such actions. See Hoffmann–La Roche, 493 U.S. at 170, 110 S.Ct. at 486 (noting that court intervention in the collective action notice process may be necessary).
Because we affirm the district court’s decision to deny enforceability of the arbitration agreements in this case, we necessarily must affirm the district court’s order denying Citi Trends’s motion to compel arbitration.
Click Billingsley v. Citi Trends, Inc. to read the entire Opinion.
S.D.N.Y.: Existence of Arbitration Agreements for Some (Not All) Employees in Putative Class, Irrelevant re “Similarly Situated” Inquiry at Stage I
This case was before the court on plaintiff’s motion for conditional certification. The case concerned allegations of impermissible tip credit, inadequate notice of same (under 203(m)), and other allegations of unpaid minimum wages. As further discussed here, defendants largely focused their attack on their twin contentions that the class proposed by plaintiff was not similarly situated to him and/or was too broad, because it contained English speakers (the plaintiff did not speak English) and employees and former employees who had signed arbitration agreements (the plaintiff did not). The court rejected both of these contentions, and reasoned that neither of these factors were appropriately considered at Stage I, the conditional certification stage.
Rejecting the defendant’s arguments in this regard, and holding that such issues were more properly reserved for Stage II or decertification analysis, the court reasoned:
The Court disagrees with defendants’ arguments. Case law imposes only a very limited burden on plaintiffs for purposes of proceeding as a conditional collective action. “[C]ourts have conditionally certified collective actions under the FLSA where plaintiffs, based on their firsthand observations, identify an approximate class of similarly situated individuals.” Hernandez v. Immortal Rise, Inc ., 2012 WL 4369746, at *4 (E.D.N.Y. Sept. 24, 2012). Here, Romero has done just that, stating in his declaration that he “personally observed … Defendants’ policy to pay below the statutory minimum wage rate to all tipped employees,” that he and other tipped employees were compensated “all at rates below the minimum wage,” that he has never seen a tipped employee “receive proper notice explaining what a tip credit is,” that he and other tipped employees had to spend more than 20% of their daily time in non-tipped related activities, that he observed defendants engaging in time-shaving, that he observed when employees were sent home without call-in pay if the restaurant was not busy, and that he “personally observed that all non-exempt employees received the same form of wage and hour notice.” Romero Decl. ¶¶ 2–9. The affidavit of a plaintiff attesting to the existence of similarly situated plaintiffs is sufficient for the purposes of a motion to approve a collective action. See Cheng Chung Liang v. J.C. Broadway Restaurant, Inc., 2013 WL 2284882, at *2–3 (S.D.N.Y. May 23, 2013) (“For the purposes of this motion, … plaintiffs’ evidence—in the form of [one employee’s] affidavit—is sufficient to establish that … there may be class members with whom he is similarly situated.”). Thus, Romero has made a sufficient showing that he and potential plaintiffs “were victims of a common policy or plan that violated the law.” Hoffman, 982 F.Supp. at 261.
Defendants’ principal argument is that because other employees signed arbitration agreements, Romero is not similarly situated to these other employees. Def. Mem. at 6–14. Defendants assert that the claims here are “properly pursued solely in arbitration, on an individual basis, by all of Ruhlmann’s employees who signed such an agreement” and therefore that “Ruhlmann’s employees are dissimilar from Plaintiff Romero and must pursue any claims they may have in an arbitral forum rather than federal court.” Def. Mem. at 8–9. Romero challenges both the enforceability and the validity of these arbitration agreements. He argues that the agreements are not enforceable because they violate the fee-shifting provision of the FLSA. Reply at 6–7. Romero also argues that defendants caused several of these agreements to be signed by coercion, that it is highly likely that several employees did not actually sign arbitration agreements, and that the validity of the signatures on several agreements are questionable. Reply at 7–9; Pl. May 31 Letter at 2. Additionally, he asserts that the agreements are unenforceable because they limit the statute of limitations on employees’ claims to six months and because they were not provided to employees in their native language. Pl. Aug. 20 Letter at 2–3.
As already noted, the question on a motion to proceed as a collective action is whether the proposed plaintiffs are similarly situated “with respect to their allegations that the law has been violated.” Young, 229 F.R.D. at 54; accord Meyers, 624 F.3d at 555 (in conditional collective action approval, question is whether the proposed plaintiffs are similarly situated to the named plaintiffs “with respect to whether a FLSA violation has occurred”). The arbitration agreements do not create any differences between Romero and the proposed plaintiffs with respect to Romero’s claims that defendants have violated the FLSA. That is, the validity vel non of the agreements is unrelated to any claims of a violation of the FLSA. Under this reasoning, the existence of differences between potential plaintiffs as to the arbitrability of their claims should not act as a bar to the collective action analysis. Indeed, courts have consistently held that the existence of arbitration agreements is “irrelevant” to collective action approval “because it raises a merits-based determination.” D’Antuono v. C & G of Groton, Inc., 2011 WL 5878045, at *4 (D.Conn. Nov. 23, 2011) (citing cases); accord Hernandez, 2012 WL 4369746, at *5;Salomon v. Adderly Indus., Inc., 847 F.Supp.2d 561, 565 (S.D.N.Y.2012) (“The relevant issue here, however, is not whether Plaintiffs and [potential opt-in plaintiffs] were identical in all respects, but rather whether they were subjected to a common policy to deprive them of overtime pay ….”) (alteration in original) (internal citation and quotation marks omitted).
In support of its argument that the existence of arbitration agreements merits denial of collective action approval, defendants make arguments about the eventual enforceability of the arbitration agreements and rely on cases in which courts granted motions to dismiss and compel arbitration because of such agreements. See Def. Mem. at 6–7. Critically, defendants do not even address the cases holding that consideration of the validity of arbitration agreements is inappropriate in the context of a motion to approval an FLSA collective action. The situation here is thus akin to the situation in Raniere v. Citigroup Inc., 827 F.Supp.2d 294 (S.D .N.Y.2011), rev’d on other grounds, 2013 WL 4046278 (2d Cir.2013), in which the court remarked:
Defendants have failed to cite a single authority finding that due to the possibility that members of the collective [action] might be compelled to bring their claims in an arbitral forum, certification is not appropriate. Such arguments are best suited to the second certification stage, where, on a fuller record, the court will examine whether the plaintiffs and opt-ins are in fact similarly situated.
Id. at 324.
Defendants’ strongest argument is that “[i]t would be a waste of judicial and party resource to force defendants” to send notice to individuals ultimately bound to arbitrate claims. Def. June 4 Letter at 3. But the notice requirement is not unduly burdensome in this case and the defendants’ proposal essentially amounts to an invitation for the Court to adjudicate the validity of the arbitration agreements. But, as already noted, case law makes clear that this sort of merits-based determination should not take place at the first stage of the conditional collective action approval process. Plaintiff has raised at least colorable arguments to support the invalidity or unenforceability of the arbitration agreements, some of which are fact-intensive. Case law holds, however, that issues of fact surrounding arbitration agreements are properly resolved at the second stage of the two-step inquiry. D’Antuono, 2011 WL 5878045, at *5; accord Salomon, 847 F.Supp.2d at 565 (“[A] fact-intensive inquiry is inappropriate at the notice stage, as Plaintiffs are seeking only conditional certification.”) (citing cases); Ali v. Sugarland Petroleum, 2009 WL 5173508, at *4 (S.D.Tex. Dec. 22, 2009) (“The Court will make the determination [of whether to exclude those who signed arbitration agreement from the class] at the conclusion of discovery, when it may properly analyze the validity of the arbitration agreement.”). Defendants not only fail to distinguish these cases, they do not even proffer any argument as to why the reasoning of these cases is wrong.
Defendants have submitted evidence contradicting Romero’s claim that he is similarly situated to other employees with respect to other aspects of his claims, such as his understanding of the tip credit. See Collin Decl. ¶ 9. However, “the two-stage certification process exists to help develop the factual record, not put an end to an action on an incomplete one.” Griffith v. Fordham Fin. Mgmt., Inc., 2013 WL 2247791, at *3 (S.D.N.Y. May 22, 2013) (granting collective action approval where defendant had put forth “contravening evidence”) (emphasis omitted) (internal citations and quotation marks omitted). For these reasons, Romero’s motion for conditional approval of a collective action is granted.
Click Romero v La Revise Associates, L.L.C. to read the court’s entire Opinion & Order.
N.D.Ala.: Arbitration Agreements Obtained From Current Employees After Putative Collective Commenced Might Be Unenforceable
Billingsley v. Citi Trends, Inc.
This case was before the court on the plaintiffs’ motion for conditional certification as well as the plaintiffs’ motion for corrective action regarding meetings the defendant acknowledged having with putative class members after learning of the lawsuit. The court had previously denied the plaintiffs’ motion to strike declarations obtained from such putative class members, but deferred on the motion for corrective action. As discussed here, after the plaintiffs had commenced their putative collective action, but prior to the time they filed their motion for conditional certification, the defendant required putative class members to attend meetings with its management where it had putative class members sign blank declarations and a mandatory arbitration agreement. The court held that the documents may not be enforceable, and that class members who felt they signed same under duress would not be bound by the documents they previously signed.
Discussing the issue the court explained:
The court deferred ruling on the plaintiffs’ request for a corrective letter or court supervised notice that was embedded in the motion to strike. (Doc. 51, at 10–11). After the parties’ May 31, 2012 Status Conference and before the Plaintiffs’ deadline for filing their Motion for Conditional Certification and Notice, Citi Trends initiated company-wide in-person meetings between two corporate representatives and its SMs, who are potential collective class members in this case. At these meetings, with only a few exceptions, every SM completed a fillin-the-blank declaration about their job duties (doc. 40–7 and following) and signed an arbitration agreement that bound every SMs to arbitrate any claims he or she had against Citi Trends (doc. 47–6). The Human Resources Representative also presented every SM with a disclosure about this lawsuit and the effect of the arbitration agreement on his or her rights in the lawsuit. (Doc. 47–2).
As the court expressed in its memorandum opinion on the motion to strike, the individualized meetings that occurred between SMs and Citi Trends Human Resources Representatives are cause for concern. At these meetings, SMs waived their rights to bring any claims against Citi Trends in court, including participation in this litigation.
Especially when the employer-employee relationship is in play, the possibility of abuse is ripe in these type of unilateral communications. The Eleventh Circuit recognized the potential for coercion in such situations and held that the court had authority in Rule 23 class actions to invalidate opt-outs when they were procured through fraud, duress, or other improper conduct. Kleiner v. First Nat. Bank of Atl., 751 F.2d 1193, 1212 (11th Cir.1985). In cases such as this where Citi Trends has an obvious interest in diminishing the size of the potential class, a risk exists that these types of unsupervised communications will sabotage the employee’s independent decision-making regarding their involvement in the action. See id. at 1206. The court takes seriously its responsibility to see that an employer not engage in coercion or duress to decrease the size of a collective class and defeat the purpose of the collective action mechanism of the FLSA. Because of these concerns as more fully stated on the record, the court will GRANT IN PART AND DENY IN PART the Plaintiffs’ motion for court-supervised notice. Any potential plaintiffs who felt they signed the mandatory arbitration agreement under duress will still be allowed to opt-in to this collective action; the language of the notice will reflect that right.
Anyone who has ever moved for or opposed a motion for conditional certification (i.e. a “Stage 1” motion) of a collective action is likely familiar with the common defense tactic whereby a defendant asserts that the named plaintiff and members of the putative class are not similarly situated. Typically a defendant argues that individualized issues pertaining to the claims of the named plaintiff(s) (and members within the putative class) render the case ill-suited for class/collective treatment. As discussed below, three recent decisions discuss three separate issues related to this analysis. In the first, a court held that a pro se plaintiff could not adequately serve the interests of the putative class and denied conditional certification. However, in the second and third cases discussed below, the courts rejected the defendants’ contentions that: (1) an undocumented (“illegal”) immigrant was ill-suited to serve as a representative plaintiff; and (2) issues regarding whether specific putative class members signed binding arbitration agreements relating to the issues raised by the named-plaintiff were not properly raised at stage 1.
Pro Se Plaintiff Inadequate Representative for Collective Action
Koch v. CHS Inc.
In the first case, the pro se plaintiff (apparently fairly savvy) moved for conditional certification. Denying the motion, the court held that a pro se plaintiff cannot pursue their claims in a collective action for lack of adequacy of representation. Specifically, the court explained:
The issue of whether a pro se plaintiff can sue on behalf of other members in a collective action is one of adequacy of representation. Determining adequate representation is typically based on a two-part inquiry: “First, the named representatives must appear able to prosecute the action vigorously through qualified counsel, and second, the representatives must not have antagonistic or conflicting interests with the unnamed members of the class.” Lerwill v. Inflight Motion Pictures, Inc., 582 F.2d 507, 512 (9th Cir.1978). Courts have generally concluded that a pro se plaintiff cannot pursue claims on behalf of others in a representative capacity. See Simon v. Hartford Life, Inc., 546 F.3d 661, 664 (9th Cir.2008); see also Johns v. County of San Diego, 114 F.3d 874, 876 (9th Cir.1997) (“While a non-attorney may appear pro se on his ow n behalf, he has no authority to appear as an attorney for others than himself.”); C.E. Pope Equity Trust v. United States, 818 F.2d 696, 697 (9th Cir.1987) (holding that a pro se litigant may not appear as an attorney for others). Here, because Koch is a pro se litigant, he cannot pursue claims on behalf of other CHS employees in a representative capacity.
The rule holds true for pro se plaintiffs seeking to bring collective action suits under the F LSA. Morgovsky v. AdBrite, Inc. ., No. C10–05143–SBA, 2012 WL 1595105 *4 (N.D.Cal. May 4, 2012) (denying pro se plaintiff’s motion to bring a collective action under the FLSA and dismissing collective action claims); Spivey v. Sprint/United Mgt. Co., No. 04–2285–JWL, 2004 WL 3048840 (D.Kan. Dec.30, 2004) (holding that a claim under 29 U.S.C. § 216(b) cannot be brought by a pro se plaintiff).
Accordingly, the Court agrees with CHS that Koch, because he proceeds in the litigation pro se, cannot represent the class members on whose behalf he purports to bring suit. Therefore, proceeding with the litigation as a collective action is not permitted pursuant to 29 U.S.C. § 216(b). The motion will be denied.
Click Koch v. CHS Inc. to read the entire Memorandum Decision and Order.
Named-Plaintiff’s Immigration Status Has No Bearing on Similarly Situated Analysis
Torres v. Cache Cache, Ltd.
In the second case of interest, arising from alleged tip pool violations at defendant’s restaurant, the defendant opposed conditional certification, in part, based on the fact that the named-plaintiff was allegedly an undocumented immigrant. The court rejected this notion, citing well-established authority that an FLSA plaintiff’s immigration status is irrelevant to a claim inasmuch thereunder, inasmuch as same seeks payment for work already performed. Discussing this issue the court reasoned:
Finally, in an apparent attempt to distinguish Plaintiff from other proposed collective action members, Defendants note his status as an illegal immigrant and involvement in other similar FLSA lawsuits. Neither of these issues, however, is likely to provide Defendants with a valid defense that is unique to Plaintiff. First, there are a number of cases finding that evidence of immigration status has no relevance in an FLSA action. See e.g. Reyes v. Snowcap Creamery, Inc., 2012 WL 4888476 at *2 (D.Colo. Oct.15, 2012) (recognizing that “weight of authority clearly holds that a plaintiff’s immigration status is irrelevant in an FLSA action” and citing supporting authority). It is also questionable whether Defendants will be able to introduce evidence of other lawsuits involving Plaintiff. See Van Deelen v. Johnson, 2008 WL 4683022 at *2 (D.Kan. Oct.22, 2008) (evidence of plaintiff’s prior lawsuits cannot be admitted for purpose of proving that plaintiff is litigious but may be admissible for other purposes).
Click Torres v. Cache Cache, Ltd. to read the entire Order.
Whether Putative Class Members’ Claims Are Subject to Arbitration is an Issue Reserved for Stage 2
Hernandez v. Immortal Rise, Inc.
In the final decision, the court had before it the Report and Recommendation of the magistrate judge recommending conditional certification. As it had in its opposition to the underlying motion, the defendant argued that members of the putative class who had previously signed agreements to arbitrate their FLSA claims, were not similarly situated to the plaintiff and the remainder of the putative class. As such, the defendant argued such putative class members should be excluded from receiving notice of their right to join the case by opting in. Rejecting this contention, the court held that the issue of whether (and who) may have signed arbitration agreements, is an issue reserved for Stage 2 (decertification) analysis, and is not properly addressed at the conditional certification stage:
Next, defendants argue that the proposed class should be limited to cashiers and those who had not signed arbitration agreements, excluding grocery packers and delivery workers, whom defendants never employed, and employees subject to arbitration agreements. However, these are issues of fact that should be determined during discovery rather than at this preliminary stage. See D’Antuono v. C & G of Groton, Inc., No. 11–cv–33, 2011 U.S. Dist. LEXIS 135402, at *12–13 (D.Conn. Nov. 23, 2011) (holding that the enforceability of arbitration agreements should not be determined during conditional class certification); Lujan v. Cabana Mgmt., No. 10–cv–755, 2011 U.S. Dist. LEXIS 9542, at *23–24, 2011 WL 317984 (E.D.N.Y. Feb. 1, 2011) (quoting Realite v. Ark Rests. Corp., 7 F.Supp.2d 303, 307 (S.D.N.Y.1998)) (holding that defendants’ contention that its restaurants constituted separate entities raised a contested issue of fact, and was therefore not a basis for denying conditional class certification). Thus, Judge Bloom correctly found that the proposed class should not be limited as defendants propose.
Click Hernandez v. Immortal Rise, Inc. to read the entire Order.
D.N.J.: District Court Denies Motion to Vacate Clause Construction Permitting Arb to Proceed on Class Basis, Where Contract Was Silent as to Class Issues; U.S.S.C. to Take Up Issue
Opalinski v. Robert Half Intern., Inc.
Another court, this one within the Third Circuit (which had previously ruled on the issue), has held that an arbitrator does not exceed his or her authority when the arbitrator permits FLSA claims to proceed on a class-wide basis, in the face of an arbitration agreement that the parties stipulate is “silent” as to class issues. Determining that same was permissible under Stolt-Nielsen and under principles of New Jersey contract law, the court explained:
At issue here is whether the Award should be vacated because the Arbitrator exceeded her powers by finding that the Agreements allow for class arbitration. Defendants contend that the Arbitrator’s finding was erroneous and violates Supreme Court precedent. See Stolt–Nielsen v. AnimalFeeds Int’l Corp., –––U.S. ––––, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010) (finding that arbitration panel exceeded its powers by imposing its own policy choice instead of interpreting and applying the agreement of the parties, and explaining that a party cannot be compelled to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so). Defendants note that the Agreements did not expressly authorize class arbitration and argue that an agreement to arbitrate does not implicitly authorize class arbitration, nor does the non-existence of an express class action waiver imply that the parties agreed upon class arbitration.
Defendants’ arguments are unpersuasive particularly given the binding precedent of Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3d Cir.2012), which is directly on point. In light of Stolt–Nielsen, the Third Circuit Court of Appeals in Sutter evaluated an arbitrator’s decision that class arbitration was allowed under a contract that was silent on the issue of class arbitration. The court explained that while “Stolt–Nielsen does prohibit an arbitrator from inferring parties’ consent to class arbitration solely from their failure to preclude that procedure,” it did not establish a rule that class arbitration is only allowed where an arbitration agreement expressly provides for class arbitration procedures. Sutter, 675 F.3d at 222, 224 . Instead, an arbitrator can interpret an arbitration clause to allow for class arbitration, even if the clause does not expressly provide for it, if the arbitrator articulates a contractual basis for that interpretation. Id. at 224. The arbitrator in Sutter examined the parties’ intent and used contract interpretation principles to reach his conclusion. He described the text of the arbitration clause—which provided that “no civil action concerning any dispute arising under this [a]greement shall be instituted before any court”—as broad and embracing all conceivable court actions including class actions. He further explained that an express carve-out for class arbitration would be required to negate this reading of the clause. Id. at 218. When reviewing the award, the court explained that the arbitrator had the authority to find for class arbitration because such a finding had a contractual basis. Id. at 223–24.
In light of binding Third Circuit authority and basic principles of New Jersey law regarding contract interpretation, the court held that the arbitrator was within her powers to hold that the arbitration of plaintiff’s claims could proceed on a class-wide basis, in the absence of an explicit class-waiver in the arbitration agreement.
Click Opalinski v. Robert Half Intern., Inc. to read the entire Opinion & Order.
Significantly, within days of the Opalinkski decision, the Supreme Court agreed to take up this very issue. To that end, the Supreme Court accepted cert of the Sutter case, on which the Opalinski relied. The question certified by the Supreme Court is:
Whether an arbitrator acts within his powers under the Federal Arbitration Act (as the Second and Third Circuits have held) or exceeds those powers (as the Fifth Circuit has held) by determining that parties affirmatively “agreed to authorize class arbitration,” Stolt-Nielsen, 130 S. Ct. at 1776, based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.
Click Oxford Health Plans LLC v. Sutter to read more about the Supreme Court’s decision to accept cert.
D.Minn.: Where Agreement Silent As to Collective Action, Case May Proceed on Collective Basis in Arbitration
Mork v. Loram Maintenance of Way, Inc.
This case was before the court on the defendant’s motion to compel arbitration on an individual basis. While, the parties were in agreement that the case should be remanded to arbitration, the salient issue before the court was whether the arbitration agreement- silent on the issue of collective/class proceedings- allowed for collective treatment of the case. The court held that the parties had agreed to collective treatment of claims by the agreement’s silence. Thus, the case was remanded to arbitration, but to be treated as a collective action.
Initially the court held that, based on the absence of clear authority one way or another from the Supreme Court, the court had the authority to decide whether the case could proceed on a collective basis. Having made this decision, it proceeded into its analysis.
Discussing the standard it would apply, the court explained:
“The scope of an arbitration agreement is determined with reference to the agreement of the parties as evidenced by the terms of “the arbitration agreement itself or [based on] some background principle of contract law that would affect its interpretation.” See AT & T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1750 (2011). The Court must “give effect to the contractual rights and expectations of the parties.” Stolt–Nielsen, 130 S.Ct. at 1774 (citation omitted); see Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626 (1985) (“as with any other contract, the parties’ intentions control”). Imposition of a particular type of arbitration cannot be based solely “on policy judgments.” Concepcion, 131 S.Ct. at 1750. Like any contract dispute, however, ambiguities in the agreement must be construed against the drafter. See, e.g., Advantage Consulting Group, Ltd. v. ADT Sec. Sys., Inc., 306 F.3d 582, 588 (8th Cir.2002).
In facing the question of whether to compel collective versus individual arbitration, the Court must therefore determine what the parties agreed to in the Arbitration Clause. A mere agreement to arbitrate, without more, does not imply agreement to collective arbitration. Cf. Stolt–Nielsen, 130 S.Ct. at 1775. This approach is consistent with Eighth Circuit precedent in the context of class arbitrations, Dominium Austin Partners, L.L.C. v. Emerson, 248 F.3d 720, 728–29 (8th Cir.2001), and consolidation of individual arbitrations, Baesler v. Cont’l Grain Co., 900 F.2d 1193, 1195 (8th Cir.1990). In Emerson and Baesler, the Eighth Circuit held that an arbitration agreement must provide for the type of arbitration which is sought to be compelled by the Court.
Loram urges a restrictive reading of Baesler, Emerson, and Stolt–Nielsen which would require explicit reference to, and acceptance of, collective arbitration in order for Mork’s claim to proceed on a collective basis. Those cases do not stand for such a strict standard. In Stolt–Nielsen, the Supreme Court’s statement that an intention to authorize class arbitration cannot be “infer[red] solely from the fact of the parties’ agreement to arbitrate,” Stolt–Nielsen, 130 S.Ct. at 1775 (emphasis added), indicates that such an intention may be inferred and need not be explicitly stated. The majority in Stolt–Nielsen therefore “[did] not insist on express consent to class arbitration.” Id. at 1783 (Ginsburg, J., dissenting). Accordingly, “Stolt–Nielsen does not foreclose the possibility that parties may reach an ‘implicit’—rather than express—‘agreement to authorize class-action arbitration.’ “ Jock v. Sterling Jewelers Inc., 646 F.3d 113, 123 (2d Cir.2011); see Jones v. St. Paul Cos ., Inc., 495 F.3d 888, 893 (8th Cir.2007) (“[F]ederal courts are bound by the Supreme Court’s considered dicta almost as firmly as by the Court’s outright holdings, particularly when … [the dicta] is of recent vintage and not enfeebled by any [later] statement.”) (internal quotation marks and citations omitted).
In sum, the question before the Court is not whether the Arbitration Clause used the precise words “collective arbitration.” Rather, the Court must determine whether the Arbitration Clause evinces sufficient indicia of agreement between the parties that a claim within its scope may proceed on a collective basis. In doing so, the Court must keep in mind that Loram drafted the language of the Arbitration Clause and, therefore, that ambiguities must be construed against it. Advantage Consulting, 306 F.3d at 588.
The Court notes that the test from Stolt–Nielsen stated here may be more stringent that the appropriate test for contracts of adhesion. See Stolt–Nielsen, 130 S.Ct. at 1783 (Ginsburg, J., dissenting) (“[T]he Court apparently spares from its affirmative-authorization requirement contracts of adhesion presented on a take-it-or-leave-it basis.”). Because the Court concludes that the Arbitration Clause does affirmatively authorize collective arbitration, there is no need to address whether the CAA was a contract of adhesion and therefore subject to a less stringent standard. The Court notes, however, that the parties here, unlike those in Stolt–Nielsen, are not both “sophisticated business entities” with comparable bargaining power, see id. at 1775, and the CAA appears to have been a “take-it-or-leave-it” boilerplate contract.”
The court then applied its standard and held that the silence of the parties on the collective issue demonstrated the indicia that the parties agreed to collective arbitration:
“While the parties distinguish between “express” and “implied” agreement to collective arbitration, as discussed above, the relevant question is whether there exists sufficient indicia that the parties agreed to undertake collective arbitration in the event of an employment dispute. While the Arbitration Clause does not refer explicitly to collective claims, the Court concludes that it does authorize such claims to proceed before an arbitrator.
To begin, the Arbitration Clause applies to “claims or disputes of any nature arising out of or relating to the employment relationship” and “statutory claims … arising out of or resulting from [Mork’s] employment with Loram.” (CAA ¶ 8 (emphasis added).) Mork’s claim that he and similarly situated coworkers were deprived of overtime pay is undisputedly related to “the employment relationship” and his FLSA claim is “statutory.” An action arising from FLSA violations “may be maintained against any employer … 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.” 29 U.S.C. § 216(b) (emphasis added). Thus, Mork has a statutory right to bring a FLSA claim on behalf of himself and similarly situated Field Application Technicians, and such a claim arises out of his employment relationship with Loram.
Loram contends that Mork’s ability to bring a claim on behalf of similarly situated employees is foreclosed because the Arbitration Clause’s references to potential arbitral parties include only Loram and Mork. For example, the Arbitration Clause provides that the arbitrator will have “exclusive authority to resolve any dispute or claim relating to, arising out of, or resulting from my employment with Loram” and the “statutory claims” covered by the Arbitration Clause are those “arising out of or resulting from my employment with Loram or the formation or the termination of my employment with Loram.” (CAA ¶ 8 (emphasis added).) These statements, Loram argues, show that the Arbitration Clause does not authorize collective arbitrations.
The Court is not persuaded that the Arbitration Clause’s particular reference to disputes between Mork and Loram must be read to preclude a collective claim. Mork’s FLSA claim is no less a claim “arising out of [his] employment with Loram” because it implicates similarly situated employees. The FLSA claim remains “his.” Viewed in even the most charitable light, Loram’s argument only creates some amount of ambiguity in the Arbitration Clause—ambiguity that must be resolved in Mork’s favor. Advantage Consulting, 306 F.3d at 588.
The conclusion that the Arbitration Clause permits collective arbitration is also supported by the contrast between its broad delegation of “any claims and disputes” to arbitration and its exclusion of only “claims or disputes [arising out of the CAA], or the breach, termination or invalidity thereof.” (CAA ¶ 8.) By negative implication, collective arbitration—a type of arbitration not expressly excluded—can be presumed to be covered by the wide ranging terms of the Arbitration Clause, particularly in light of the factors already discussed.
The Court further notes that the Arbitration Clause provides that arbitration be conducted in accordance with model rules provided by the American Arbitration Association (“AAA”) “in force at the time of the claim or dispute” and that the AAA “shall administer any such arbitration.” (CAA ¶ 8.) The AAA’s “Policy on Class Arbitrations” states that the AAA will “administer demands for class arbitration … if (1) the underlying agreement specifies that disputes arising out of the parties’ agreement shall be resolved by arbitration in accordance with any of the Association’s rules, and (2) the agreement is silent with respect to class claims, consolidation or joinder of claims.” See American Arbitration Association, Policy on Class Arbitrations, July 14, 2005, available at http://www.adr.org/sp.asp?id=25967. Even as interpreted by Loram, the Arbitration Clause in this case satisfies both criteria.
While this AAA policy was promulgated after the execution of the Arbitration Clause, the parties here agreed to be bound by the AAA rules in force “at the time of the claim or dispute.” (CAA ¶ 8.) The parties thus intended to be bound by future iterations of those rules. Loram’s decision to follow and abide by AAA rules therefore lends further support to the Court’s conclusion that the Arbitration Clause authorizes collective arbitration.
It is important to note that Mork has not moved the Court to consolidate otherwise independent actions into a single proceeding as was the case in Baesler, 900 F.3d at 1194–95. Rather, Mork seeks to proceed with a single, statutorily prescribed collective claim. Consolidation is a method by which a Court may efficiently resolve otherwise legally independent claims which happen to share a common question of law or fact. See Fed.R.Civ.P. 42(a). A FLSA collective action, in contrast, is a mechanism in which one claim can vindicate the rights of many. If Mork were seeking consolidated treatment of independent claims brought by employees, the Court would hesitate in considering those claims as “arising out of or resulting from [Mork’s] employment with Loram.” (See CAA ¶ 8.)
The Court also notes that some of the concerns raised by the Supreme Court about class arbitration are not present in the sort of collective arbitration sought by Mork. For one, a FLSA collective action is unlike a class action under Rule 23 of the Federal Rules of Civil Procedure because similarly situated employees must always “opt-in” to a FLSA action. See 29 U.S.C. § 216(b). Worries about an arbitrator “adjudicat[ing] the rights of absent parties” without affording them the full panoply of protections provided in court are therefore greatly diminished. See Stolt–Nielsen, 130 S.Ct. at 1776.
Finally, while fully cognizant that policy judgments may not be dispositive in this legal analysis, see Concepcion, 131 S.Ct. at 1750, the Court would be remiss if it did not briefly address the consequences of adopting a rule that an arbitration agreement cannot allow for collective or class arbitration except where the agreement explicitly uses and ratifies those precise terms. Such a rule would lead to great uncertainty, calling into question the countless arbitration agreements that have been executed in the shadow of a less stringent rule. Moreover, the adoption of such a rule would likely prevent the vindication of workers’ basic rights under the FLSA. See Sutherland v. Ernst & Young LLP, 768 F.Supp.2d 547, 553–54 (S.D.N.Y.2011).”
Click Mork v. Loram Maintenance of Way, Inc. to read the entire Memorandum of Law and Order.
D.R. Horton Inc. and Michael Cuda. Case 12-CA-25764
This case was before the NLRB on Michael Cuda’s challenge to D.R. Horton’s class/collective action waiver, which Cuda was required to sign as a condition of his employment. Specifically the certified question was “whether an employer violates Section 8(a)(1) of the National Labor Relations Act 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 working conditions against the employer in any forum, arbitral or judicial.” The NLRB held that such an agreement unlawfully restricts employees’ Section 7 right to engage in concerted action for mutual aid or protection, notwithstanding the Federal Arbitration Act (FAA), which generally makes employment-related arbitration agreements judicially enforceable.”
The NLRB stressed that arbitration agreements are not per se unenforeceable. However, whether the class/collective action mechanism is used in arbitration or in a court of law, the NLRB held that it must be available to employees.
Rejecting D.R. Horton’s contention that the NLRB’s holding was inconsistent with prior U.S. Supreme Court jurisprudence, the NLRB explained:
“The Respondent and some amici further argue that holding that the MAA violates the NLRA would be inconsistent with two recent Supreme Court decisions stat-ing that a party cannot be required, without his consent, to submit to arbitration on a classwide basis. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758, 1775–1776 (2010) (arbitration panel exceeded its authority by permitting class antitrust claim when commercial shipping charter agreement’s arbitration clause was silent on class arbitration); AT&T Mobility v. Concepcion, 131 S.Ct. 1740, 1751–1753 (2011) (claim that class-action waiver in consumer arbitration agreement was unconscionable under state law was preempted by FAA). Neither case is controlling here. Neither involved the waiver of rights protected by the NLRA or even employment agreements. Furthermore, AT&T Mobility involved a conflict between the FAA and state law, which is governed by the Supremacy Clause, whereas the present case involves the argument that two federal statutes conflict. Finally, nothing in our holding here requires the Respondent or any other employer to permit, participate in, or be bound by a class-wide or collective arbitration proceeding. We need not and do not mandate class arbitration in order to protect employees’ rights under the NLRA. Rather, we hold only that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial. So long as the employer leaves open a judicial forum for class and collective claims, employees’ NLRA rights are preserved without requiring the availability of classwide arbitration. Employers remain free to insist that arbitral proceedings be conducted on an individual basis.”
Click D.R. Horton Inc. and Michael Cuda. Case 12-CA-25764 to read the entire Decision and Order.
S.D.N.Y.: Collective Action Waiver Unenforceable Because It Would Prevent Employees From Vindicating Their Substantive Statutory Rights Under the FLSA
Raniere v. Citigroup Inc.
In an issue appearing more and more these days, this case was before the court on the defendant’s motion to compel arbitration on an individualized basis. Although the plaintiffs raised several issues regarding the enforceability of the arbitration agreement at issue, as discussed here, the case is significant because it held that- as a matter of law- purported waivers of the right to participate in an FLSA collective action are unenforceable, because they prevent employees from vindicating their substantive statutory rights (that are not waivable).
In so holding, the court reasoned:
“Plaintiffs make two arguments to the effect that the collective action waiver is unenforceable because it would prevent Plaintiffs from vindicating their substantive statutory rights. The first, and broader, of these arguments is that if the waiver is given effect, the FLSA will not serve both its remedial and deterrent functions. Plaintiffs’ second, narrower, contention is that to give effect to the collective action waiver and arbitration agreement here would have the practical effect of precluding Plaintiffs from pursuing the enforcement of their statutory rights due to the costs involved.
It is well recognized that employees cannot release their substantive rights under the FLSA by private agreement. See Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707, 65 S.Ct. 895, 89 L.Ed. 1296 (1945) (“No one can doubt but that to allow waiver of statutory wages by agreement would nullify the purposes of the Act.”); see also Bormann v. AT & T Commc’ns, Inc., 875 F.2d 399 (2d Cir.1989) (“[P]rivate waiver of claims under the [FLSA] has been precluded by such Supreme Court decisions as Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 65 S.Ct. 895, 89 L.Ed. 1296 (1945), and D.A. Shulte, Inc. v. Gangi, 328 U.S. 108, 66 S.Ct. 925, 90 L.Ed. 1114 (1946).” (citations omitted)).
It is likewise well established that “ ‘[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.’ “ Circuit City, 532 U.S. at 123 (quoting Gilmer, 500 U.S. at 26); see also Desiderio, 191 F.3d at 205–06. Arbitration of a claim of statutory rights will only be compelled if that claim can be effectively vindicated through arbitration. See Mitsubishi, 473 U.S. at 637 n. 19 (noting that if arbitration clause and other contractual provisions “operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies,” “we would have little hesitation in condemning the agreement as against public policy”); Green Tree, 531 U.S. at 90 (noting that “even claims arising under a statute designed to further important social policies may be arbitrated because so long as the prospective litigant effectively may vindicate his or her statutory cause of action in the arbitral forum the statute serves its functions.” (citations and internal quotation marks and brackets omitted)).
Federal substantive law of arbitrability requires federal courts to declare otherwise operative arbitration clauses unenforceable when enforcement would prevent plaintiffs from vindicating their statutory rights. American Express II, 634 F.3d at 199; see also Kristian v. Comcast Corp., 446 F.3d 25, 47–48 (1st Cir.2006); Hadnot v. Bay, Ltd., 344 F.3d 474, 478 n. 14 (5th Cir.2003); Paladino v. Avnet Computer Technologies, Inc., 134 F.3d 1054, 1062 (11th Cir.1998); Sutherland v. Ernst & Young LLP, 768 F.Supp.2d 547, 549 (S.D.N.Y.2011); Chen–Oster v. Goldman, Sachs & Co., 785 F.Supp.2d 394 (S.D.N.Y.2011); DeGaetano v. Smith Barney, Inc., 983 F.Supp. 459, 469 (S.D.N.Y.1997).
The Second Circuit addressed this issue in American Express I, 554 F.3d 300. The Court concluded that the class action waiver in that case was unenforceable because plaintiffs had demonstrated that they otherwise would not be able to vindicate their statutory rights “in either an individual or collective capacity,” id. at 314 (emphasis in original), due to the great expense of pursuing that antitrust litigation and the small individual recovery each plaintiff could expect. As such, the waiver would have the practical effect of ensuring no claims would be brought at all, granting the defendant “de facto immunity from … liability.” Id. at 320. The Supreme Court vacated American Express I and remanded for reconsideration in light of Stolt–Nielsen S.A. v. AnimalFeeds Int’l Corp., ––– U.S. ––––, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010). American Express Co. v. Italian Colors Rest., ––– U.S. ––––, 130 S.Ct. 2401, 176 L.Ed.2d 920. On remand, the Circuit again found the arbitration provision unenforceable because “the class action waiver in this case precludes plaintiffs from enforcing their statutory rights” due to the prohibitive cost of litigating on an individual basis. American Express II, 634 F.3d at 197–99.
In Ragone, 595 F.3d 115, the Court of Appeals again confirmed the importance of the statutory rights analysis, indicating its willingness, if in dicta, to hold unenforceable an arbitration agreement containing a shortened statute of limitations and a fee-shifting provision that would “significantly diminish a litigant’s rights under Title VII.” 595 F.3d at 125–26. The Court of Appeals discussion in Ragone demonstrates “that the holdings of American Express apply not only to ‘negative value’ class action claims, that is, claims that are so small in value that it is not economically viable to pursue them as individual claims.” Chen–Oster, 785 F.Supp.2d at 408.
Defendants are incorrect that the Supreme Court’s decision in AT & T, –––U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742, overrules American Express and Ragone. AT & T addressed only whether a state law rule holding class action waivers unconscionable was preempted by the FAA. ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742. The holdings of both the American Express cases and Ragone were based, in contrast and as this decision must be, on federal arbitral law, and AT & T in no way alters the relevance of those binding circuit holdings. See Chen–Oster v. Goldman, Sachs & Co., 2011 WL 2671813 (S.D.N.Y. July 7, 2011) (holding that AT & T does not abrogate American Express or Ragone and noting that “it remains the law of the Second Circuit that an arbitration provision which precludes plaintiffs from enforcing their statutory rights is unenforceable.” Id. at *4). Moreover, while the dissent in AT & T noted with concern that “agreements that forbid the consolidation of claims can lead small-dollar claimants to abandon their claims rather than to litigate,” 131 S.Ct. at 1760, AT & T involved the vindication of state, not federal, rights. Thus, even if AT & T is read broadly to acquiesce to the enforcement of an arbitral agreement that as a practical matter would prevent the vindication of state rights in the name of furthering the strong federal policy favoring arbitration, that would not alter the validity of the federal statutory rights analysis articulated in Mitsubishi, Green Tree, American Express and Ragone. The Court accordingly analyses the present issues under the reasoning articulated in those cases.
i. The Right to Proceed Collectively Under the FLSA Cannot be Waived
The Second Circuit has not determined whether the collective action provisions of the FLSA are integral to its structure and function, and, as such, whether an agreement waiving that right can be enforced.
The First Circuit has expressly reserved decision on this question. Skirchak v. Dynamics Research Corp., 508 F.3d 49, 62 (1st Cir.2007) (“We do not need to decide if class actions under the FLSA may ever be waived by agreement…. We also do not reach the question of whether such waivers of FLSA class actions are per se against public policy under either the FLSA or the Massachusetts Fair Wage Law”). And while a number of other Circuits have accepted that, at least in principle, arbitration agreements containing waivers of the right to proceed collectively under the FLSA are enforceable, those decisions were either based upon a premise rejected by the Second Circuit or did not reach the question here. See Horenstein v. Mortgage. Mkt., Inc., 9 F. App’x 618, 619 (9th Cir.2001); Carter v. Countrywide Credit Indus. ., Inc., 362 F.3d 294, 297–98 (5th Cir.2004); Vilches v. Travelers Co., Inc., 413 Fed. App’x 487, 494 n. 4 (3d Cir.2011); Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1378 (11th Cir.2005); Adkins v. Labor Ready, Inc., 303 F.3d 496, 503 (4th Cir.2002).
Specifically, the court in Caley did not address whether the right to proceed collectively under the FLSA may be waived as a matter of federal law. Instead, it addressed whether such waivers were unconscionable under Georgia state law principles. See Caley, 428 F.3d at 1377–79.
The Second Circuit has rejected the reasoning relied on in Horenstein, Adkins, Carter, and Vilches. In American Express, the Second Circuit noted that the issue of whether statutorily granted collective action rights under the ADEA, which incorporates by reference the collective action rights granted in the FLSA, could be waived was not decided by Gilmer, 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26, because “because a collective and perhaps a class action remedy was, in fact, available in that case.” American Express II, 634 F.3d at 195–96; American Express I, 554 F.3d at 314 (same). Countrywide, Adkins, Horenstein, and Vilches, the latter three relying on Johnson v. West Suburban Bank, 225 F.3d 366, 377 (3d Cir.2000), assumed that Gilmer resolved whether collective enforcement rights were waivable. See Vilches, at 494 n. 4 (citing Adkins, 303 F.3d at 503 (citing Johnson, 225 F.3d at 377)); Adkins, 303 F.3d at 503 (citing Johnson, 225 F.3d at 377); Countrywide, 362 F.3d at 298 (citing Gilmer, 500 U.S. at 32). Under the Second Circuit’s precedents, Gilmer does not. See American Express II, 634 F.3d at 195–96. Accordingly, the issue presented by Plaintiffs here, namely whether the right to proceed collectively under the FLSA is unwaivable—beyond such a clause being unenforceable were Plaintiffs to demonstrate that to do so would have the practical effect of denying them their substantive rights—is an open question in this Circuit.
This issue is fundamentally distinct, and more nuanced, than that presented in Gilmer, which addressed whether ADEA claims are arbitrable at all. Here, Plaintiffs do not contest that individually filed FLSA claims are generally arbitrable or that were the agreement to permit proceeding as a collective in arbitration, as the parties could in Gilmer, see American Express II, 634 F.3d at 195–96, that such a provision would be enforceable. Accordingly, this case does not oppose the strong federal policy favoring arbitration with the rights granted in the FLSA, but instead only questions whether the right to proceed collectively may be waived.
There are good reasons to hold that a waiver of the right to proceed collectively under the FLSA is per se unenforceable—and different in kind from waivers of the right to proceed as a class under Rule 23. Collective actions under the FLSA are a unique animal. Unlike employment-discrimination class suits under Title VII or the Americans with Disabilities Act that are governed by Rule 23, Congress created a unique form of collective actions for minimum-wage and overtime pay claims brought under the FLSA.
The Fair Labor Standards Act of 1938, and its original collective action provision, was a product of the forces that gave rise to what has been termed the constitutional revolution of 1937, marking a high point in the clash of the federal courts with President Roosevelt and New Deal legislators. The original FLSA collective action provision, passed in the wake of the “switch in time that saved nine,” provided that
[a]ny employer who violates the provisions of section 6 or section 7 of this Act shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages. Action to recover such liability may be maintained in any court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated, or such employee or employees may designate an agent or representative to maintain such action for and in behalf of all employees similarly situated. The court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant and costs of the action.
Fair Labor Standards Act, 75 Cong. Ch. 676, § 16(b), 52 Stat. 1060, 1069 (1938). As the Supreme Court has noted, this provision appeared for the first time in the bill reported by a Conference Committee of both Houses. See Brooklyn Sav. Bank, 324 U.S. at 705 n. 15 (citing H. Rep. No. 2738, 75th Cong.3d Sess., at 33). The bill that later became the FLSA took over thirteen months to become law and went through a variety of iterations, creating a veritable raft of legislative history. Within this, however, “[t]he only reference to Section 16(b) was by Representative Keller….” Id. at 705 n. 16. Representative Keller stated in relevant part:
Among the provisions for the enforcement of the act an old principle has been adopted and will be applied to new uses. If there shall occur violations of either the wages or hours, the employees can themselves, or by designated agent or representatives, maintain an action in any court to recover the wages due them and in such a case the court shall allow liquidated damages in addition to the wages due equal to such deficient payment and shall also allow a reasonable attorney’s fees and assess the court costs against the violator of the law so that employees will not suffer the burden of an expensive lawsuit. The provision has the further virtue of minimizing the cost of enforcement by the Government. It is both a common-sense and economical method of regulation. The bill has other penalties for violations and other judicial remedies, but the provision which I have mentioned puts directly into the hands of the employees who are affected by violation the means and ability to assert and enforce their own rights, thus avoiding the assumption by Government of the sole responsibility to enforce the act. Id. (citing 83 Cong. Rec. 9264).
This collective action provision was amended by the Portal–to–Portal Act of 1947, the history of which has been described by the courts in the following manner:
In 1947, in response to a “national emergency” created by a flood of suits under the FLSA aimed at collecting portal-to-portal pay allegedly due employees, Congress enacted the Portal–to–Portal amendments to the FLSA. 61 Stat. 87 (1947). The original, stated purpose of the bill containing these amendments was: “To define and limit the jurisdiction of the courts, to regulate actions arising under certain laws of the United States, and for other purposes.” 93 Cong. Rec. 156 (H.R.2157). To this end, the amendments, among other things, barred unions from bringing representative actions under the FLSA. Arrington v. Nat. Broadcasting Co., Inc., 531 F.Supp. 498, 500 (D.D.C.1982) (citations omitted); see also United Food & Commercial Workers Union, Local 1564 of N.M. v. Albertson’s, Inc., 207 F.3d 1193, 1200–01 (11th Cir.2000) (noting the Arrington court’s “exhaustive survey of the legislative history of the 1947 amendments”). As amended, FLSA collective actions allow “plaintiffs the advantage of lower individual costs to vindicate rights by the pooling of resources. The judicial system benefits by efficient resolution in one proceeding of common issues of law and fact arising from the same alleged” unlawful activity. Hoffman–La Roche Inc. v. Sperling, 493 U.S. 165, 170, 110 S.Ct. 482, 107 L.Ed.2d 480 (1989) (describing the collective action provisions under the ADEA, which are by reference those of the FLSA).
More specifically, the revised collective action provision that resulted from these amendments limited representative suits to those workers who submit written opt-in notices. See 29 U.S.C. § 216(b) (“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”). FLSA actions are, consequently, not true representative actions as under Rule 23, but instead those actions brought about by individual employees who affirmatively join a single suit. These collective action provisions were crafted by not one but over the course of several Congresses to balance the need to incentivize the bringing of often small claims by way of collectivization in order to ensure the statute’s function, while barring actions “brought on behalf of employees who had no real involvement in, or real knowledge of, the lawsuit.” Arrington, 531 F.Supp. at 501. The Act’s, and more specifically this provision’s, lengthy legislative history evidences Congress’ precise determination of how this balance should be struck in order to ensure the statute’s remedial and deterrent functions.
In addition, as the Supreme Court has described,
[t]he legislative history of the Fair Labor Standards Act shows an intent on the part of Congress to protect certain groups of the population from substandard wages and excessive hours which endangered the national health and well-being and the free flow of goods in interstate commerce. The statute was a recognition of the fact that due to the unequal bargaining power as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered national health and efficiency as a result of the free movement of goods in interstate commerce. Brooklyn Sav. Bank, 324 U.S. at 706–07. Although the right to sue under the FLSA is compensatory, “it is nevertheless an enforcement provision.” Id. at 709. Not the least integral aspect of this remedy is the ability of employees to pool resources in order to pursue a collective action, in accordance with the specific balance struck by Congress. The particular FLSA collective action mechanism was additionally a Congressional determination regarding the allocation of enforcement costs, as the ability of employees to bring actions collectively reduces the burden borne by the public fisc, as Representative Keller noted. See 83 Cong. Rec. 9264. Moreover, prohibition of the waiver of the right to proceed collectively accords with the Congressional policy of uniformity with regard to the application of FLSA standards, see H. Rep. No. 2182, 75th Cong., 3d Sess. at 6–7, because an employer is not permitted to gain a competitive advantage because his employees are more willing to assent to, or his human resources department more able to ascertain, collective action waivers than those of his competitors. As the Supreme Court has noted, “the purposes of the Act require that it be applied even to those who would decline its protections.” Alamo Foundation v. Secretary of Labor, 471 U.S. 290, 105 S.Ct. 1953, 85 L.Ed.2d 278 (1985). It is not enough to respond that such a waiver should be upheld in the name of the broad federal policy favoring arbitration, simply because the waiver was included in an arbitration agreement. An otherwise enforceable arbitration agreement should not become the vehicle to invalidate the particular Congressional purposes of the collective action provision and the policies on which that provision is based.
In sum, a waiver of the right to proceed collectively under the FLSA is unenforceable as a matter of law in accordance with the Gilmer Court’s recognition that “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute.” Gilmer, 500 U.S. at 26. See also Chen–Oster v. Goldman, Sachs & Co., 785 F.Supp.2d 394 (S.D.N.Y.2011) (holding arbitral provision waiving right to proceed as a class unenforceable as to Title VII pattern and practice claims).”
Further, because the arbitration agreement at issue said that if the collective action waiver were found to be unenforceable, the case(s) must be litigated in court, the court held that the case should not be remanded to arbitration, having held the collective action waiver unenforceable.
Click Raniere v. Citigroup Inc. to read the entire Opinion.
M.D.Tenn.: Contractual Limitation of FLSA Claims to One Year SOL Unenforceable; Provision Severed and Arb Agreement Enforced
Pruiett v. West End Restaurants, LLC
Before the court in this putative collective action were the defendants’ motion to dismiss and remand the case to arbitration, as well as plaintiffs’ motion to conditionally certify the case as a collective action. As discussed here, the court held that the provision within the arbitration agreement purporting to reduce the applicable statute of limitations to one year (from either two or three years) was unenforceable. However, because the court further held that the unenforceable provision was severable, it severed the statute of limitations provision and otherwise held the arbitration agreement to be enforceable. Thus, it remanded the case to arbitration after striking the unenforceable provision.
After reviewing a history of applicable case law and determining that the enforceability of the provision in question was an issue of first impression, the court reasoned that allowing an employer to contractually shorten the statute of limitations applicable to FLSA claims would unduly abridge the statutory rights granted under the FLSA. The court explained:
“The FLSA requires employers to pay their employees a statutory minimum wage and to pay overtime compensation at a rate not less than one and one-half times the employees’ regular rate of pay. 29 U.S.C. §§ 206 and 207 (2011). An employer who fails to comply with these provisions is liable for the unlawfully withheld compensation, as well as an additional equal amount of liquidated damages. Id. at § 216(b). These damages, including liquidated damages, are compensatory. Elwell v. Univ. Hosp. Home Care Servs., 276 F.3d 832, 840 (6th Cir.2002).
A plaintiff seeking to recover under the FLSA must file the claim within two years of accrual of the cause of action, or within three years of accrual for a willful violation. 29 U.S.C. § 255(a) (2011). Each paycheck that fails to include required wages constitutes a separate statutory violation. See Archer v. Sullivan Cnty., Nos. 95–5214, 95–5215, 129 F.3d 1263, 1997 WL 720406, at *2 (6th Cir.1997). The plaintiff may recover compensatory damages under § 216(b) as far back as the statute of limitations will reach—that is, the plaintiff may recover up to two years of compensatory damages if the violation was not willful, and up to three years of compensatory damages if the violation was willful, dating back from the date of the complaint. See, e.g., Campbell v. Kelly, No. 3:09–cv–435, 2011 WL 3862019, at *10 (S.D.Ohio Aug.31, 2011) (finding that, where plaintiff filed FLSA claims on November 16, 2009, the plaintiff could seek relief dating back to November 17, 2007 for a non-willful violation, or back to November 17, 2006 for a willful violation); Sisk v. Sara Lee Corp., 590 F.Supp.2d 1001, 1004 (W.D.Tenn.2008) (finding that where plaintiff filed FLSA claims on May 7, 2007, the “relevant time period” for willful violations began on May 7, 2004); Herman v. Palo Grp. Foster Home, Inc., 976 F.Supp. 696, 700, 705–06 (W.D.Mich.1997) (finding that defendant willfully violated FLSA and awarding back wages and liquidated damages for period of three years prior to filing of complaint), aff’d, 183 F.3d 468 (6th Cir.1999) (upholding damages award). Thus, under the FLSA, a plaintiff’s substantive right to full compensation is determined by the statute of limitations. As a consequence, unlike the federal statutory claims at issue in Morrison, Daimler–Chrysler, and Ray, shortening the statute of limitations for an FLSA claim necessarily precludes a successful plaintiff from receiving full compensatory recovery under the statute.
Indeed, BrickTop’s does not dispute that enforcing the contractual limitations provision would limit the Plaintiffs to one year of compensatory damages recovery, even though the FLSA entitles Plaintiffs to more. Thus, Defendants concede that the provision prevents plaintiffs from recovering the “full panoply” of compensatory remedies to which the FLSA entitles them. That is not a permissible result. Plaintiffs’ substantive right to full compensation under the FLSA may not be bargained away. Accordingly, the contractual limitations provision is unenforceable as to FLSA claims.
In reaching this holding, the court has undertaken the necessary statute-specific analysis that neither the Boaz court nor the Wineman court conducted. In Wineman, which was issued before the U.S. Supreme Court decision in Penn Plaza limited Barrentine to its facts, the district court found that a six-month contractual limitations provision in an employment agreement was not enforceable as to FLSA claims. Wineman, 352 F.Supp.2d at 821–23. The defendant had argued, as BrickTop’s does here, that waiver of the FLSA statute of limitations constituted waiver of a procedural right, not a substantive right. Id. at 922. The court rejected this argument, reasoning that, “in light of the public policy implications, … that is a distinction without a difference.” Id. In support of this reasoning, the court relied on Barrentine for the proposition that even FLSA procedural rights, including the right to the judicial forum, could not be abridged, compromised, or waived by private agreement. Id. at 823. Thus, the court characterized the shortened limitations period as “a compromise of employees’ rights under the FLSA” in violation of public policy. Id. at 822–23. It did not analyze whether the shortened statute of limitations affected FLSA remedies, likely based on its assumption that Barrentine rendered that inquiry irrelevant.
In Boaz, the district court enforced a six-month contractual limitation on FLSA claims, but, like Wineman, did not analyze whether that limitation affected FLSA remedies. In Boaz, the plaintiff had asserted claims under Title VII for race and gender discrimination, as well as FLSA claims for pay discrimination and failure to pay overtime compensation. Id. at 932. At the summary judgment stage, the plaintiff, relying on Wineman, contended that her FLSA claims were not time-barred by a six-month limitations provision in her employment agreement. The court declined to follow Wineman, reasoning that the subsequent Penn Plaza decision limited Barrentine to its facts, and found that federal statutory procedural rights may be abridged. Id. The court observed that several courts had found that limitations provisions were enforceable as to other federal statutes, including discrimination claims under § 1981, ERISA claims, and FMLA claims. Id. at 933. It is also noted that, as a general matter, statutes of limitations are procedural, not substantive. Id. However, without any analysis specific to the FLSA, the court summarily concluded that the FLSA statute of limitations is procedural and, therefore, waivable.
Thus, although Boaz and Wineman reached differing conclusions about the enforceability of a contractual limitation on FLSA claims, neither reached the crucial inquiry presented here. In particular, the reasoning in Boaz is flawed for two reasons. First, the Boaz court misinterpreted Penn Plaza, which merely held that statutory claims may be arbitrated, but did not address whether the statute of limitations for any federal statute—let alone the FLSA—constituted a waivable right. Second, the court should not have concluded that the FLSA statute of limitations was purely “procedural” without assessing whether enforcing a shortened limitation on FLSA claims prevented successful plaintiffs from vindicating their substantive right to full compensation.”
Click Pruiett v. West End Restaurants, LLC to read the entire Memorandum and Order.