Home » Posts tagged 'Arbitration Clause'
Tag Archives: Arbitration Clause
11th Cir.: Arbitration Clause Requiring Fee/Cost Splitting Violates the FLSA
This case was before the Eleventh Circuit on the defendant-employer’s appeal of the district court’s denial of its motion to compel arbitration. Specifically, the district court held that the parties’ agreement to arbitrate was unenforceable because the arbitration clause required each party to bear its own attorneys’ fees and costs. The Eleventh Circuit affirmed in part and vacated and remanded in part, so that the district court could decide whether the offending provision could be severed, which the lower court had already held it could not.
Describing the relevant arbitration clauses at issue, the court explained:
Those arbitration clauses provide:Any dispute arising out of this agreement shall be resolved by mediation or arbitration, each party agrees, the parties will equally divide cost of mediation. Each party to any arbitration will pay its own fees and expense, including attorney fees and will share other fees of arbitration. The arbitrat[or] may conduct the hearing in absence of either party. After notified of such hearing. [sic](Emphasis added).
In his R&R, the magistrate judge determined the language of the arbitration provisions plainly prohibited Appellees from recovering their fees and costs, and thus the fees and costs clauses were unenforceable as they contravened the FLSA. The magistrate judge went on to note the arbitration provisions did not contain severability clauses, and that in the absence of a severability clause, the objectionable language could not be severed. Accordingly, the magistrate judge determined the arbitration provisions were unenforceable in their entirety. PIP filed objections to the R&R, arguing the fees and costs clauses merely required the parties to “pay their own way” while the arbitration is proceeding, and that nothing in the ECAs prohibited the arbitrator from shifting the fee if and when the Appellees were determined to be prevailing parties. And, even if the fees and costs clauses were unenforceable, the magistrate judge erred in concluding the “objectionable language could not be severed solely because the arbitration clauses do not contain a severability provision.” PIP asserted that Eleventh Circuit case law does not hold that any arbitration agreement that contains an unenforceable remedial restriction is completely null and void in the absence of a severability clause. Instead, the court is required to determine whether the unenforceable clauses are severable, which is decided as a matter of state law, here the law of Florida. PIP claimed Florida law allowed an unenforceable clause to be severed as long as the unenforceable clause does not go to the essence of the agreement. Thus, PIP asserted, even if the court were to sever the offending clause, there would still be a valid agreement to resolve employment-related disputes through arbitration.The district court adopted the magistrate judge’s R&R and denied PIP’s motion to compel arbitration after concluding the arbitration provisions in the relevant contracts were unenforceable because they denied the Appellees a substantive right under the FLSA—the right to recover fees and costs pursuant to 29 U.S.C. § 216(b). Furthermore, the court concluded that because the arbitration provisions did not provide for severability, the arbitration provisions were unenforceable in their entirety.
On appeal, the Eleventh Circuit affirmed the district court’s holding that the fee/cost splitting provision violated the FLSA. However, it remanded for further decision on whether the offending provision could be severed notwithstanding the absence of a severability clause.
Holding the fee/costs splitting provision to be unenforceable, the court explained:
Appellees contend the arbitration provisions improperly deny them their statutory right to recover fees and costs under the FLSA.The district court did not err in concluding that the statement “[e]ach party to any arbitration will pay its own fees and expense, including attorney fees and will share other fees of arbitration,” does not leave any discretion with the arbitrator to award fees and costs. (Emphasis added). We have held the terms of an arbitration clause regarding remedies must be “fully consistent with the purposes underlying any statutory claims subject to arbitration.” Paladino v. Avnet Comput. Techs., Inc., 134 F.3d 1054, 1059 (11th Cir. 1998). Thus, the clause providing that each party will pay its own fees and costs is unenforceable, as the FLSA allows fees and costs as part of a plaintiff’s award. Id. at 1062 (“When an arbitration clause has provisions that defeat the remedial purpose of the statute, … the arbitration clause is not enforceable.”); 29 U.S.C. § 216(b)… Appellees have met their burden of establishing that enforcement of the fees and costs clauses in the arbitration provisions would preclude them from effectively vindicating their federal statutory rights in the arbitral forum. See id. at 1259. Thus, the district court did not err in concluding the fees and costs clauses are unenforceable.
However, the Court rejected the portion of the district court’s opinion which had held–consistent with Florida law–that the absence of a severability clause rendered the arbitration cause unenforceable in its entirety. As such, it reversed and remanded this issue for further consideration, reasoning:
The district court then reasoned that if the arbitration provisions contained a severability clause, the offending clauses could potentially be severed. Because the ECAs did not contain a severability provision, the court stated the objectionable language could not be severed and determined the arbitration clauses were unenforceable in their entirety.However, we have rejected the proposition that an “arbitration agreement that contains an unenforceable remedial restriction is completely null and void unless it also contains a severability clause.” Terminix Int’l Co., LP v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327, 1331 (11th Cir. 2005). Instead, if a provision is “not enforceable, then the court must determine whether the unenforceable provisions are severable. Severability is decided as a matter of state law.” Id.Our law does not support that an arbitration provision is unenforceable in its entirety if it contains an offending clause and lacks a severability provision. Id. The district court did not go on to the next step to address whether the unenforceable clauses were severable as a matter of Florida law, despite PIP arguing this issue in its objections to the R&R. Thus, we remand to the district court to decide in the first instance the issue of whether the offending clauses are severable under Florida law.
Thus, the Eleventh Circuit affirmed the district court’s conclusion the fees and costs clauses of the arbitration provisions were unenforceable, but reversed the district court’s conclusion the arbitration provisions are unenforceable in their entirety solely because they lack a severability provision, and remanded for the district court to determine whether the fees and costs clauses are severable as a matter of Florida law.
Click Hudson v. P.I.P., Inc. to read the entire Opinion.
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.
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.
2 New Decisions Regarding Enforcement of Arbitration Agreements in Context of FLSA Claims Reach Opposite Results
Recent weeks have brought more opinions regarding the issue of whether specific arbitration agreements are enforceable. However, as two recent opinions show, these decisions continue to be fact-specific in virtually all instances, and judge and/or state-law specific in others. In the first case, Carey v. 24 Hour Fitness USA Inc., relying on Texas state law, the Fifth Circuit affirmed a lower court’s decision holding that an arbitration agreement allowing the employer to unilaterally change the terms lacked the necessary consideration to render the agreement enforceable. In a second case, LaVoice v. UBS Financial Services, Inc., a court within the Southern District of New York examined a different arbitration-related issue- the substantive unconscionability of a collective action waiver- concluding that compelling a potentially high value FLSA claim to arbitration on an individual basis does not conflict with the substantive law regarding the FLSA’s collective action provisions. Significantly, the court’s conclusion in this regard appears to conflict with another recent holding discussed here, in which another court within the same district held that collective action waivers are unenforceable per se, because they prevent employees from vindicating their substantive statutory rights under the FLSA.
Carey v. 24 Hour Fitness USA Inc.
Law360 aptly summarized this decision as follows:
“The Fifth Circuit on Wednesday allowed a proposed overtime class action against 24 Hour Fitness USA Inc. to go forward, finding an arbitration agreement at issue contained an ‘escape hatch’ for the fitness chain that made it unenforceable.
In a unanimous, published opinion, the appeals court upheld a Texas federal court’s ruling that the arbitration agreement in 24 Hour Fitness’ employee handbook was illusory because it allowed the company to retroactively modify or terminate the agreement.
Because 24 Hour Fitness reserved the right to unilaterally adjust the conditions of employment — including those which required employees to arbitrate claims on an individual basis — the appeals court found that the arbitration agreement was invalid from the outset.
‘If a 24 Hour Fitness employee sought to invoke arbitration with the company pursuant to the agreement, nothing would prevent 24 Hour Fitness from changing the agreement and making those changes applicable to that pending dispute if it determined that arbitration was no longer in its interest,’ the panel said.
Click Carey v. 24 Hour Fitness USA Inc. to read the entire Fifth Circuit Opinion.
LaVoice v. UBS Financial Services, Inc.
In LaVoice, the court held that an arbitration agreement, requiring individual arbitration was enforceable, despite plaintiff’s argument that such an scheme would deprive plaintiff of substantive statutory rights to proceed collectively under the FLSA. Discussing the issue, the court reasoned:
“…LaVoice also argues that the arbitration agreements between him and UBS are unenforceable because they would preclude him from exercising his statutory rights. To support this position, LaVoice likens the class waivers in the instant case with those that were found unenforceable in the Amex line of cases. LaVoice also draws comparison between his circumstances and those of the plaintiff in Sutherland v. Ernst & Young LLP, 768 F.Supp.2d 547 (S.D.N.Y.2011).
The enforceability of a class action waiver in an arbitration agreement must be considered on a case-by-case basis “on its own merits, governed with a healthy regard for the fact that the FAA is a congressional declaration of a liberal federal policy favoring arbitration agreements.” Amex II, 634 F.3d at 199. Turning to the class waiver at issue and LaVoice’s specific circumstances, this Court finds that the “practical effect of enforcement of the waiver” in the instant case would not “preclude” LaVoice from exercising his rights under the statutes. Id. at 196. The Court comes to its finding that LaVoice’s statutory rights will not be precluded by enforcement of the class waiver after reviewing his submissions regarding: his estimated damages claim, his estimated attorneys’ fees, his estimated expert fees, his disinclination to pursue his claims individually, his counsel’s disinclination to pursue the claims individually, and his likelihood of success at arbitration.
Although LaVoice and Defendants contest the value of LaVoice’s overtime claim, in reaching its decision, the Court accepts the figure cited in LaVoice’s own opposition papers of overtime claims between $127,000 to $132,000. Aff. Jeffrey G. Smith in Supp. of Opp’n. to Mot. to Compel Arbitration at ¶ 5. Assuming this self-reported value of claims, the Court finds that LaVoice’s circumstances differ drastically on their face from those of the plaintiffs in either the Amex line of cases or Sutherland. Plaintiffs in those cases could each only claim de minimus damages of less than $6000.
With respect to the estimated attorneys’ fees, the Court finds that, unlike the arbitration agreement at issue in Sutherland, the arbitration agreements at issue in the instant case would permit LaVoice to recover an award of attorneys’ fees. Since the agreements authorize the arbitrator(s) to “award whatever remedies would be available to the parties in a court of law” and awards of attorneys’ fees are mandatory for the prevailing party under the FLSA, the agreements themselves crate no impediment to LaVoice’s recovery of fees. See Ex. 6 to Decl. of Matthew Levitan at 20; Ex. 10 to Decl. of Matthew Levitan at 3; and 29 U.S.C. § 216(b) (“The court in such action shall … allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.”) The instant case is therefore distinguishable from Sutherland and its consideration of attorneys’ fees in determining whether plaintiff’s claims were unarbitrable. See also Banus v. Citigroup Global Mkts., Inc., No. 09–7128, 2010 WL 1643780, at *10 n. 61 (S.D.N.Y. Apr.23, 2010) (enforcing class action waiver in arbitration agreement where plaintiff’s estimated recovery was $45,675.36 and attorney’s fees would be “at least $100,000.”)
The court also evaluated and rejected plaintiff’s claim that expert costs to be incurred would be prohibitive in an individual claim, whereas spreading the cost over a collective group would be more palatable and rejected same, in the context of plaintiff’s proffered argument that his counsel would be disinclined to pursue his claims on an individual basis by themselves.
The court concluded, “[i]n light of the foregoing, the Court finds that LaVoice has not met his “burden of showing the likelihood of incurring” such “prohibitively expensive” costs such that the class waiver provisions in the instant action would preclude him from bringing his claims against Defendants in an individual or collective capacity. Amex II, 634 F.3d at 197 (citing Randolph, 531 U.S. at 92.)”
Click LaVoice v. UBS Financial Services, Inc. to read the entire Memorandum and Order compelling the case to arbitration on an individual basis.
As more and more cases are decided following recent United States Supreme Court jurisprudence on arbitrability and class waiver issues, it’s becoming more and more clear that the results are very fact-specific to each case. Hopefully, higher courts will begin to weigh in on some of the broader issues and give some clarity in the near future.
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.
Overtime Law Blog 