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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.
Respondent-Employer Enjoined From Requiring Current Employee Putative Class Members From Waiving Right to Participate in Class/Collective Action, Once Putative Class/Collective Action Pending
Herrington v. Waterstone Mortgage Corp.
In this case, the claimant-employees had initially filed their case as a class/collective action in federal court. Pursuant to arbitration agreements that the plaintiffs had signed during their employment, the defendant successfully moved to compel the plaintiffs to pursue their claims in arbitration. Because the arbitration agreement at issue called for arbitration pursuant to the American Arbitration Association’s (AAA) rules governing arbitration, the plaintiffs successfully argued that a Rule 23 type opt-out mechanism rather than 216(b)’s opt-in governed as the appropriate class mechanism. Twelve (12) days after the arbitrator’s holding that an opt-out class procedure would govern, the defendant began requiring all current employees to sign a new arbitration clause, which if enforced, would have precluded the current employees from participating in the putative class action, yet to be certified. Arguing that the respondent-employer’s unilateral effort to defeat putative class members’ participation in the arbitration required thorough remedial measures, the claimant-employees moved for a protective order and temporary restraining order to:
(1) Enjoin any further dissemination of the letter to current employees with the class-waiver form; (2) Enjoin any effort by the respondent-employer or its counsel to chill participation in the case, including prohibiting any further unauthorized communication with any class members concerning joining the case, except as approved by the arbitrator; (3) Enjoin retaliation by [Waterstone] against any individual participating in the case; (4) Direct that [Waterstone] (in a form and manner supervised by the Arbitrator or on consent of claimants’ counsel) promptly notify all class members who received Exhibits A and B of the impropriety of [Waterstone’s] acts and the invalidity of the waivers it solicited; (5) Sanction [Waterstone] with monetary relief for its improper behavior [ ] so that [Waterstone] does not achieve any of the benefit of chilling individuals from participating in this case; (6) Reserve the opportunity for individuals to join the case post-judgment, should they opt-out now, given their employer’s clear statement of its desire that they not join this case; (7) Award Claimant’s costs and attorneys’ fees for the time spent on the motion; [and] (8) Award such further relief in the future, as may become necessary to remedy the ill effects of [Waterstone’s] improper behavior.
In opposition, the respondent-employer argued that the motion should be denied because: (1) the arbitrator lacked jurisdiction over the issue presented, because the parties had not agreed to arbitrate the issue of the permissibility of the subsequent class-waivers; (2) it was procedurally improper, because a class or collective action had yet to be certified; and (3) the employees had not demonstrated the requisite irreparable harm to warrant the relief sought.
Initially, the arbitrator rejected the respondent-employer’s jurisdictional argument:
It is true that a class has not yet been certified. Indeed, the clause-construction award that contemplates a class arbitration may itself be vacated by the District Court. However, even if the motion to certify a class should be denied, or if the Court should vacate the clause-construction award, the arbitration may continue as a collective proceeding (opt in) as a result of Judge Crabb’s direction that Herrington “must be allowed to join other employees to her case.” (D. Ct. Decn. at 18).
The arbitrator similarly rejected the argument that the relief sought was premature:
Whether a proceeding continues as a class procedure or a collective procedure, it must be protected from coercive or misleading communications that are designed to, or have the effect of, persuading or intimidating potential claimants to withhold their participations. The law realistically recognizes that such improper communications may be just as effective pre-certification as post-certification. Therefore, it is within the jurisdiction – indeed, it is the duty – of the judge or arbitrator before whom such a proceeding is pending to protect the integrity of the proceeding and to require that all information conveyed by the parties to potential class members about the proceeding be accurate, not coercive, and not misleading.
Waterstone’s argument that control over communications cannot arise until a class is certified is simply wrong. The power (jurisdiction) to control the parties’ communications to class members or putative class members can arise at least as early as when the initial pleading is filed. See, e.g. Hoffman-LaRoche at 487 (“[I]t lies within the discretion of a district court to begin its involvement early at the point of the initial notice.”).
The arbitrator added:
Waterstone’s contention that it has “has never consented to arbitrate its management decisions as to the nature and form of employment agreements with employees who are not parties to this case” (Jurisd. Memo at 1) assumes that this arbitration is about what kind of dispute resolution provision going forward Waterstone may provide in its form employment agreement. The assumption is false. Herrington brought this arbitration to recover past minimum wages and overtime compensation allegedly due to her and to her fellow employees. Jurisdiction over that claim was established with the filing of the demand for arbitration, and it is the duty of the arbitrator to preserve and protect the integrity of the proceedings with respect to that claim. The entire dispute that is subject to this arbitration is therefore to be resolved under the dispute resolution provisions of the pre-Amendment employment agreement that governs Herrington’s claims.
Instead, the arbitrator held that once the proceeding had commenced, the employer-respondent could not require the potential class members to waive their rights to participate in the case, as members of the class:
However, whatever may be the legality or enforceability of either Option A or Option B in future disputes that might arise between Waterstone and its mortgage-loan employees, those amendments can have no impact on this Herrington arbitration or on the employee class’s rights or choices in it. Once Herrington commenced her arbitration under the original arbitration clause in the employment agreement, Waterstone could not change the nature or course of this pending arbitration by requiring the putative claimants in this proceeding to agree to an entirely different dispute-resolution regime. This arbitration must, therefore, continue under the Agreement that governed when it was commenced, the Agreement that Waterstone, itself, argued successfully to the District Court requires Herrington’s dispute to be arbitrated.
Thus, the arbitrator granted the claimant-employees’ their requested relief.
Click Herrington v. Waterstone Mortgage Corp. to read the entire Decision and Order on Claimant’s Application for Protective Order, Temporary Restraining Order and Preliminary Injunction.