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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.
11th Cir.: District Court Correctly Refused to Enforce Arbitration Agreement Obtained From Putative Class Members With Motion for Conditional Cert Pending
Billingsley v. Citi Trends, Inc.
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.