The Wage and Hour Litigation Blog

Authored by Robert S. Whitman

Surprising many observers, the Supreme Court on Monday upheld an arbitrator’s decision to permit class arbitration even though the parties’ agreement did not explicitly provide for such procedures.

In Oxford Health Plans LLC v. Sutter [here], the arbitration clause stated in part that “[n]o civil action concerning any dispute arising under this Agreement shall be instituted before any court.”  The Court said that the arbitrator, who read the clause to permit arbitration on a classwide basis rather than limiting it to bilateral disputes between the contracting parties before him, did not exceed his powers in doing so.

Pundits had expected that the Court’s grant of certiorari in Sutter – in combination with the Justices’ comments at oral argument – signaled its intention to follow its 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. [here], in which the Court held that an arbitration panel exceeded its powers under section 10(a)(4) of the Federal Arbitration Act by imposing class action procedures where the parties’ agreement was silent on whether such procedures were permitted.  The Sutter arbitrator had reached a similar result, and Oxford argued that Stolt-Nielsen required a similar reversal.

But the Court distinguished Stolt-Nielsen by noting that the parties in that case “had entered into an unusual stipulation that they had never reached an agreement on class arbitration.”  Thus, the Court said, the panel’s imposition of class procedures was not based on a reading of the contract or the parties’ intent, but on a policy choice in favor of class proceedings.

Not so in Sutter.  Noting a “stark” contrast with the facts of Stolt-Nielsen, the Court said that the Sutter arbitrator did base his decision, “through and through,” on the parties’ contract, which the parties had authorized him to interpret.  And because he “did what the parties had asked,” he could not be said to have exceeded his powers, regardless of what the Justices may have thought about the merits of the ruling.

Perhaps more important is what the Court, in a long footnote, said it would not decide:  whether the availability of class arbitration is a “question of arbitrability.”  If it is, then absent “clear[] and unmistakabl[e]” evidence that the parties agreed to submit that threshold issue to the arbitrator, the availability of class arbitration is reserved for a court.  That issue was not presented in Sutter, although the apparent message of its footnote is that the Court may be interested in taking up this issue soon.  (The Court similarly left this issue unresolved a decade ago in Green Tree Financial Corp. v. Bazzle.)

Sutter was decided on this relatively narrow basis, without any sweeping pronouncements (or reiterations of earlier sweeping pronouncements) about the propriety of class arbitration.  Even the concurring opinion by Justice Alito (author of Stolt-Nielsen), in which Justice Thomas joined, merely nodded in that direction.

Yet despite the narrowness of the ruling, Sutter does contain important lessons for companies with arbitration agreements with their employees:

• A forceful reaffirmation of limited judicial review of arbitration awards – Again and again, Justice Kagan’s opinion – often deploying strategic use of parenthetical clauses – reminds courts of their extremely limited role in reviewing arbitrators’ decisions.  After discussing the parties’ arguments in support of and opposition to the arbitrator’s decision to permit class arbitration, the Court explicitly refused to weigh in.  Instead, it offered the following, all of which are sure to be cited repeatedly in coming years by parties defending arbitral rulings in court:  “[C]onvincing a court of an arbitrator’s error – even his grave error – is not enough.”  “The potential for those mistakes is the price of agreeing to arbitration.”  “The arbitrator’s construction holds, however good, bad, or ugly.”  “[A]n arbitral decision even arguably construing or applying the contract must stand, regardless of a court’s view of its (de)merits.”  “So the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”                                                                                          
• A lesson on clear drafting – The Sutter case, like Stolt-Nielsen before it, concerned an arbitration clause that was silent on the class action issue.  For employers, the takeaway is clear:  going forward, if you like arbitration but don’t want your arbitrations to proceed on a class basis, make sure the agreement states explicitly that such procedures are not permitted.  That avoids the “silence” issue altogether, and renders Stolt-Nielsen, Sutter and their ilk irrelevant.

That last point likely illustrates why, as one veteran Supreme Court observer noted, Sutter “is unlikely to have much if any broader significance.” [here]  The number of arbitration clauses that are silent on the issue of class procedures is, or should be, rapidly dwindling, as is the number of cases construing those clauses.  Ever since AT&T Mobility v. Concepcion [here], the real battleground has been whether agreements with explicit class waivers can be upheld.

On that score, while some questions of enforceability are still lingering [here], the judicial trend has been strongly in favor of enforcement.  Employers interested in that issue will want to stay tuned for decisions this summer from the Supreme Court, the Second Circuit, and other federal courts.

Authored by Robert S. Whitman

In a decision that management lawyers hope was not an April Fool’s prank, the Fourth Circuit earlier this week upheld an arbitration agreement with a class action waiver, reversing a district court decision that held the waiver unenforceable.

In so holding, the appeals court signaled its continued adherence to the holding in AT&T Mobility LLC v. Concepcion, the Supreme Court’s 2011 landmark 2011 decision that sustained class action waivers under federal law against challenges grounded in state law contract principles. 

The current case, Murithi v. Shuttle Express, Inc., arose out of a dispute in which a franchisee claimed that he (and similarly situated others) were misclassified as independent contractors in their positions as drivers for an airport shuttle service.  He sued under the FLSA and Maryland law, and the defendant moved to compel arbitration.

The district court denied the motion, finding three infirmities in the agreement:  (1) the provision requiring the parties to “each bear one-half of the fees and costs of the arbitrator”; (2) the class action waiver; and (3) the agreement’s one-year limitations provision.  The Fourth Circuit disagreed on each point.

Fee-splitting:  Relying on projected arbitration costs ($2,300 per side), plus the Plaintiff’s tax returns, the district court held that he could not afford to pursue arbitration on an individual basis in light of his potential recovery.  The appeals court was not convinced.  It held that the Plaintiff did not meet his “substantial burden” under the Supreme Court’s Green Tree decision to show that the costs of proceeding in a bilateral arbitration would be prohibitive.  The court also noted that, at oral argument, defense counsel made an “eleventh hour” agreement to bear the full arbitration costs notwithstanding the parties’ written 50-50 arrangement.

Class waiver:  The agreement stated that any arbitration “shall be conducted and resolved on an individual basis only and not on a class-wide, multiple plaintiff, consolidated or similar basis.”  The district court held that this was unconscionable, notwithstanding Concepcion, because its effect would be to preclude any claims at all given the costs of arbitration compared to the value of individual recovery.  The Fourth Circuit was having none of it.  Reaffirming Concepcion, it said courts may not “alter[] otherwise valid arbitration agreements by applying the doctrine of unconscionability to eliminate a term barring classwide procedures.”

Statute of limitations:  Under the parties’ agreement, arbitration must be commenced within one year of the act or omission giving rise to the claim.  For the district court, this clause contributed to the agreement’s unconscionability, since it unreasonably restricted the Plaintiff’s ability to pursue statutory claims.  The appellate court, rather than opining on this point, held simply that this provision was distinct from the arbitration clause, and therefore was beyond the scope of a court’s “gatekeeping function” in deciding a motion to compel arbitration.  Instead, the court held, the validity of the limitations clause was for the arbitrator to decide.

Co-authored by Robert S. Whitman, Patrick Bannon and Carlos Lopez

As we reported yesterday, in the recent oral argument in Raniere v. CitiGroup, Inc., the Second Circuit seemed skeptical of an argument that has been picking up steam among FLSA plaintiffs trying to block enforcement of agreements to arbitrate on an individual basis.  The plaintiffs argument has been: You can’t force me to resolve my FLSA claim through individual arbitration -- that would deprive me of my substantive statutory right to file a collective action.

            There is no timetable for a decision in Raniere, but a new decision from the Second Circuit gives employers reason to be hopeful.

            Yesterday, in Parisi v. Goldman Sachs & Co., the Second Circuit rejected a similar argument in the context of a “pattern-or-practice” employment discrimination claim under Title VII.  The district court had refused to enforce an arbitration agreement that required individual, as opposed to class, arbitration.  According to the district court, the agreement was unenforceable because it would have deprived the plaintiff of the right to pursue a “pattern-or-practice” claim, a right the district court found to be substantive.  Under Title VII, employees may assert pattern-or-practice claims only in class actions. 

            The Second Circuit reversed.  A “pattern-or-practice” claim, it determined, is merely a procedural method for pursuing a Title VII claim -- not a free-standing cause of action or substantive right.  In so holding, the court relied on its 2012 decision in Chin v. Port Authority of New York and a similar conclusion by the Fifth Circuit in a 2001 case.  Likewise, the court held, the right to assert a class action is a procedural right.  Because it is well established that parties to an arbitration agreement may voluntarily choose to waive procedural rights that would apply in court in favor of the informality and flexibility of arbitration, the Second Circuit concluded that there was no reason to deny enforcement of the agreement to individual arbitration. 

Parisi does not, of course, guarantee a similar result in Raniere.  Plaintiffs will undoubtedly try to identify differences between the right to assert a “pattern-or-practice” claim under Title VII and the right to file a collective action pursuant to the FLSA. 

The stakes in Raniere are high for employers with arbitration agreements permitting individual arbitration only and those hoping to implement such agreements in the near future.  If the Second Circuit enforces the agreement, employers will be one step closer to having a reliable tool for avoiding expensive collective action lawsuits.  If the court refuses enforcement, the flood of wage and hour lawsuits may only increase as employees (and their lawyers) circumvent arbitration agreements -- at least in the Second Circuit and at least until the Supreme Court decides whether to weigh in.

The strong federal policy favoring arbitration coupled with Parisi’s rejection of employees’ “substantive right” theory in the Title VII context augers well for employers, but all they can do for now is wait.

Co-authored by Richard L. Alfred, Patrick Bannon, and John Egan

Will the Second Circuit join six other circuits in holding that agreements to arbitrate FLSA claims on an individual basis -- and not on a class or collective basis -- are enforceable?  When -- if ever -- can a plaintiff avoid arbitration by claiming that arbitrating an individual FLSA claim would be economically infeasible?  Sutherland v. Ernst & Young LLP and Raniere v. CitiGroup, Inc., both scheduled for oral argument on March 20, 2103, will provide the answers.  This post addresses Sutherland; we’ll have a post on Thursday regarding Raniere and the oral argument in both cases. 

When Stephanie Sutherland was hired as an accountant at Ernst & Young, she agreed to submit all claims against the firm to arbitration on an individual rather than class or collective basis.  Notwithstanding the agreement, she later sued for $1,867.02 in overtime pay under the FLSA and state law.  She asked the court to certify her FLSA claim as a collective action and her state law claims as a class action.  

Ernst & Young filed a motion to dismiss or stay the proceeding in favor of arbitration pursuant to Sutherland’s agreement.  Sutherland opposed on the ground that that it would be economically infeasible for her to pursue such a small claim through individual arbitration.  Therefore, she argued, enforcing the arbitration agreement would prevent her from effectively vindicating her rights under the FLSA. 

The District Court ruled in Sutherland’s favor and denied Ernst & Young’s motion.  It followed the Second Circuit’s reasoning in American Express Co. v. Italian Colors Restaurant.  In AmEx, an antitrust case, the Second Circuit refused to enforce an agreement to individual arbitration on the grounds that the significant cost of hiring an economic expert would preclude the plaintiff from effectively vindicating its rights if it were limited to individual arbitration. 

The Supreme Court is considering whether to overturn AmEx.  (See discussion here) 

Ernst & Young appealed to the Second Circuit.  Even though the viability of the Second Circuit’s AmEx decision is in doubt, both sides in Sutherland have focused on how the case should be decided if the Supreme Court affirms AmEx.  Under AmEx, the key issue is whether Sutherland has economically feasible means of pursuing her claims individually in arbitration.

The U.S. Department of Labor and the EEOC submitted a joint amicus brief supporting Sutherland.  They argue that the costs and fees necessary to arbitrate Sutherland’s claims are so high (estimated by Sutherland to be approximately $200,000) that enforcing the arbitration agreement would effectively bar her from pursuing these claims.  They argue, for example, she must pay an arbitration fee of $6,000.  They also claim the need to spend $33,500 to engage an expert. 

In a response brief, Ernst & Young notes that it has stipulated to pay (a) all arbitration fees and (b)  Sutherland’s reasonable expert fees if she prevailed in the arbitration.  Of course, under the FLSA, Sutherland would be entitled to recover her reasonable attorneys’ fees from Ernst & Young if she were to prevail. 

The DOL and the EEOC argue, however, that Sutherland cannot effectively arbitrate her claims even with these cost and fee shifting provisions.  Under AmEx, they argue, “the risk of losing” alone would be sufficient to discourage her from pursuing individual arbitration.  Ernst & Young responds that the Second Circuit has never truly said a plaintiff’s concern about losing could be a reason to invalidate an arbitration agreement.  Moreover, it argues, lawyers routinely litigate individual claims alleging wage and hour violations, albeit small, simply because they can recover their fees under the FLSA. 

Ernst & Young also argues that the rule proposed by the amici would create a “slippery slope.”  Any plaintiff, in any case, could hire pricey lawyers, engage unnecessary experts or otherwise exaggerate the costs of pursuing a claim simply to evade enforcement of an individual arbitration agreement.  (During the Supreme Court’s argument in AmEx, Justice Breyer seemed concerned about this possibility as well.)  Such a rule, Ernst & Young contends, would undermine the Federal Arbitration Act, which requires the enforcement of private arbitration agreements according to their terms. 

If the Supreme Court were to affirm in AmEx, the dispute in Sutherland over the economic feasibility of individual arbitration of FLSA claims could, as a practical matter, determine whether employers can enforce arbitration agreements with their employees -- not only in FLSA cases but in a wide range of other statutory disputes.  So far, employers have been winning the issue hands down, with six other circuits endorsing agreements to resolve FLSA claims through individual arbitration. (See additional discussion here)  Stay tuned to this blog for the outcome of Sutherland -- and of AmEx.

Co-authored by Richard Alfred and Patrick Bannon

Last week, Oxford Health Plans filed its opening brief with the Supreme Court in Oxford Health Plans LLC v. Sutter.  As we noted in an earlier post, even though Sutter is not an employment case, the Supreme Court’s decision will have an important effect on whether employers that have entered into arbitration agreements with their employees containing broad language requiring “all disputes” to be submitted to arbitration but no reference to class proceedings can be required to participate in “class arbitration” of employment claims.

Following the Supreme Court’s Stolt-Nielsen and Concepcion decisions, many observers believed that employers were already protected against being forced into class arbitration without clear contractual language authorizing it.  Those decisions established that because class arbitration and bilateral arbitration limited to the parties of the agreement are profoundly different, a party cannot be required to participate in class arbitration unless the party has affirmatively agreed to do so. 

Sutter addresses the issue whether an arbitrator may properly require class arbitration without either express contractual language providing for such a procedure or clear extrinsic (“parol”) evidence that the parties intended such a result, a question that Sutter argues was left unanswered in Stolt-Nielson.  In Sutter, the plaintiff persuaded an arbitrator to interpret the arbitration clause in his agreement with Oxford Health as an agreement to engage in class arbitration.  The clause reads as follows:  “No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration . . . ”  Oxford Health argued to a district court judge and then to the Third Circuit Court of Appeals that the arbitrator’s interpretation is plainly wrong because the arbitration agreement says nothing at all about class arbitration.  Both courts, however, rejected that argument, not because they agreed with the arbitrator’s decision, but because they deferred to the arbitrator’s interpretation, which read into the arbitration agreement an intent by the parties to include class arbitration. 

In its Supreme Court brief, Oxford Health argues that the arbitrator’s interpretation of its arbitration clause to authorize class arbitration is so indefensible that it does not meet the requirement in Stolt-Nielsen that there be a contractual basis for finding that the parties agreed to class arbitration.  “If the arbitrator’s reasoning here was sufficient to [satisfy Stolt-Nielsen],” Oxford Health argues, “then nothing short of a conclusive statement  . . . precluding class arbitration . . .would permit a court to vacate an order imposing class proceedings.”  (Brief for Petitioner at 34.) 

Oxford Health also argues that the arbitrator’s decision that the parties agreed to class arbitration should have been subject to “meaningful review” by the district court.  (Brief at 34-39.)  The absence of meaningful court review, Oxford Health warns in its brief, would create two dangers.  First, some arbitrators believe that if an employee’s arbitration agreement precludes a class action in court, it would be unfair to prevent the employee from pursuing class arbitration.  Without real judicial review of their interpretations, arbitrators who feel this way may be tempted to interpret almost any arbitration agreement as an agreement to class arbitration.  Oxford Health suggests that its arbitrator fell into this camp and that the interpretation of its arbitration clause as authorizing class arbitration was just a pretext for circumventing Stolt-Nielsen.  Second, Oxford Health argues, arbitrators will often have a financial interest in whether an arbitration is a short, inexpensive individual proceeding or a high-stakes class arbitration that could last for years.  Judicial oversight of their decisions about whether to allow class arbitrations is essential, Oxford Health argues, to ensure public confidence that the decisions are fair. 

In a footnote, Oxford Health makes an even more fundamental argument:  it suggests that courts should determine for themselves whether the parties agreed to class arbitration.  (Brief at 38 n.9.)  Whether an arbitration agreement permits class arbitration, Oxford Health argues, is not an ordinary issue of contract interpretation as to which courts generally defer to arbitrators.  It is more like whether an arbitration agreement covers a particular type of dispute or whether the parties agreed to arbitrate at all -- issues that courts need to decide for themselves or review closely. 

In summary, according to Oxford Health, the District Court and the Third Circuit were wrong to overlook the flimsiness of the arbitrator’s interpretation of its arbitration clause.  A ruling by the Supreme Court in Oxford Health’s favor would close the door on efforts by plaintiffs’ counsel, sometimes against the individual interests of their clients, to expand bilateral arbitration as anticipated by the parties to broad class-wide proceedings ill-suited for arbitration.  In the context of wage and hour claims, this would also eliminate the risk that FLSA collective actions could be pursued as class arbitrations without the express agreement of the parties.

The Plaintiff-Appellee’s brief is scheduled to be filed on February 21, 2103.  In addition to Oxford Health’s brief, several amicus briefs were also filed last week (Chamber of Commerce), (Pacific Legal Foundation), (Voice of Defense Bar).  The Supreme Court is scheduled to hear argument on March 25, 2013.  A decision is expected by the end of June.  We will continue to keep our readers current on developments in this case as they occur.

Authored by Alex Passantino

'Twas the week after Christmas, and all through the land     

Our readers were focused on their year '13 plans;                                                                  

And though we've no desire to knock you off track,                                                             

We thought that 2012 deserved one last look back.                                                             

Hours, exemptions, pay rates, and more;                                                                         

Nearly 100 posts (for those keeping score).                                                                           

We know every issue will not give you your kicks,                                                                  

So we considered them all, and we picked out just six.

At the top of the list, one case, it stood out.                                      

And our blog frequently mentioned what it was all about.                                                      

We note it again, cause it's not every day                                                                        

That the SCOTUS addresses the FLSA.                                                                          

Pharma Sales Reps were the source of debate                                                                    

As the justices considered their overtime fate. 

But beyond the exemption lay a larger issue,                                                                

Which brought Roberts, CJ, and eight justices, too.                                                               

A unanimous ruling that courts won’t defer                                                                          

To an agency brief that's made up on the spur.                                                                   

No Auer.  No Skidmore.  No Seminole Rock.                                                                           

No deference at all, which came as a shock.                                                                      

And five Justices found that sales’ “other disposition”                                                    

Includes what happens with drugs ‘tween sales rep and physician.

Our second big item for the past year                                                                             

Gives hospitals all over a reason to cheer.                                                                 

Automatic break cases have been oh so scary                                                                    

But departments and managers and practices vary,                                                            

And faced with these cases, this giant morass                                                               

Increasingly, courts have been saying "no class."

Third -- a crucial pairing that’s been quite hot of late                                                   

Collective wage claims and the word “arbitrate”                                                                  

Attacks on class waivers have sunk like a stone                                                                 

Since SCOTUS approved them in Concepcion.                                                           

Employment class waivers should have the same fortune                                                    

But first must maneuver around D.R. Horton.                                                                        

In Sutter, the Supremes decide if arbitrations are class-y,                                                      

While California, it seems, is contrary -- so sassy.

The fourth of our topics is only beginning,                                                                      

Soon SCOTUS will decide if Genesis is winning                                                                       

By offering a plaintiff all possible pay                                                                              

Then moving the court:   “Make this case go away.”                                                          

With the case fully briefed, and the arguments heard,                                                          

It won’t be ‘til next year that we learn the last word. 

Our fifth and sixth issues go hand-in-hand,   

It’s the wage-hour wave that’s been sweeping the land.                                                     

Whether it’s agency efforts or plaintiff-filed cases,                                                             

FLSA violations will get thrown in your faces.                                                               

Aggressive enforcement might lay you down flat.                                                               

Will your customers know?  Well, there’s an app for that.                                                   

And these targeted efforts to cause course correction,                                                       

Won’t be going away, due to Barack’s re-election.                                                             

And the plaintiffs’ bar will also be sticking around,                                                               

As their wage-hour case filings continue to abound.

So make sure that next year, you review all this “stuff.”    

And thanks for the page views; we can’t thank you enough.                                                

We wish you success in 2013.                                                                                        

From your favorite blogging (and book-writing) team.

THANKS TO ALL OF OUR READERS. BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!

Co-authored by Richard Alfred and Patrick Bannon

For an employer, what could be worse than a class action lawsuit?  Quite possibly, a "class arbitration."  Like a class action suit, class arbitration is a proceeding in which one or a few claimants try to assert claims on behalf of many, sometimes hundreds or thousands, of other current and former employees.  But a class arbitration is decided by an arbitrator rather than in court.  There is no judge or jury, and the relatively clear rules of procedure or evidence that apply in court may or may not be followed.  The arbitrator has almost plenary authority over the proceedings, subject to only very limited appeal rights.  For employers facing wage and hour claims under the Fair Labor Standards Act, class arbitration poses the additional risk that an arbitrator might disregard the special opt-in procedures that apply to FLSA collective actions in favor of generic opt-out class action rules -- a change that could dramatically raise the monetary stakes.

Last Friday, December 7, 2012, the U. S. Supreme Court agreed to decide Oxford Health Plans LLP v. Sutter, a case that could determine whether employers that have arbitration agreements with their employees that are silent about class or collective actions are nonetheless subject to class and collective arbitration.  (The Supreme Court’s order describing the question it has agreed to decide is here.)  The stakes are high.  The Court’s decision will determine whether an arbitrator can require an organization to defend itself in class arbitration based solely on the existence of an agreement with a broad arbitration clause providing for arbitration of "all disputes" or "all claims" without mentioning class or collective proceedings.   Such broad arbitration clauses have for decades been commonly included in agreements of all kinds, including arbitration agreements with employees.  If such clauses are sufficient to authorize class-wide arbitration, employers that have arbitration agreements may be subject to a wave of class arbitration claims, including class claims under state wage and hour law, collective claims under the FLSA and, even claims that collective claims under the FLSA should be subject to class arbitration procedures, a possibility raised by the Fourth Circuit’s 2008 Long John Silver’s Restaurants, Inc. v. Cole decision.

Many observers, notably including a panel of appellate judges on the Court of Appeals for the Fifth Circuit, thought the Supreme Court had already ruled, in Stolt-Nielsen S.A. v. Animal Feeds Int'l Corp., that employers cannot be forced to participate in class or collective arbitrations based on arbitration agreements that do not expressly give arbitrators the authority to proceed on that basis.  However, the Second Circuit and perhaps the First Circuit have expressed a different view.  So has the Third Circuit in Sutter, the case the Supreme Court will review. 

Dr.  John Sutter sued Oxford Health on his own behalf and on behalf of a class of other physicians, claiming failures to reimburse the physicians in accordance with Oxford Health's contracts.  Because Sutter's contract included a broad arbitration clause, Oxford Health argued and the trial court agreed that he could pursue his claims only in arbitration.  Sutter then asked the arbitrator to authorize class arbitration -- to decide not only his own claims but the claims of the other physicians described in his class action lawsuit.  Oxford Health protested and argued, based on the language of its arbitration clause contained in the physician contracts, that it had never agreed to participate in class arbitration and that, therefore, under Stolt-Nielsen, it could not be required to  do so.  But the arbitrator ruled, based on the fact that the arbitration clause expressly covered "all" disputes (even though it didn’t mention class arbitration), that Oxford Health had implicitly agreed to class arbitration.  Emphasizing the importance of deferring to arbitrators when they interpret contracts subject to arbitration, the trial court and the Third Circuit Court of Appeals refused to disturb the arbitrator's ruling.  Whether the Third Circuit’s ruling is consistent with Stolt-Nielson, and the subsequent Supreme Court opinion in AT&T Mobility v. Concepcion, will now be decided by the Court.

Employers can hope that the Supreme Court’s decision to review the Third Circuit's Sutter decision arises from the concern of a majority of the justices that the Third Circuit's reasoning (and similar reasoning by the Second and First Circuits) could undermine what the Court decided in Stolt-Nielsen.  If an arbitrator is free to interpret any arbitration agreement that provides for arbitration of "all" disputes or "all" claims as an implicit authorization of class arbitration, then the overwhelming majority of parties to arbitration agreements could be forced to defend class arbitrations, even though the vast majority of them never even contemplated, much less agreed to participate in, any such proceedings.  Employers with arbitration agreements should watch Sutter closely -- a favorable Supreme Court decision could protect them against a legal problem worse than a class action lawsuit. 

The Court has not yet announced the schedule for its consideration of Sutter.  We will keep our readers informed of further developments.  A decision may not be issued until June 2013.

Authored by Patrick J. Bannon

The Supreme Court announced this week that it has granted review in American Express Co. v. Italian Colors Restaurant.  The case could have an important impact on whether courts may decline to enforce an employee’s express agreement to arbitrate all employment claims on an individualized basis, waiving class arbitration procedures, and nevertheless permit pursuit of FLSA or other wage and hour claims on a class or collective basis in arbitration or in court.

The AmEx case arose when a restaurant filed a federal antitrust class action complaint against American Express in federal court.  American Express moved to compel arbitration of the restaurant’s claim on an individual basis, based on an arbitration clause that included a waiver of class arbitration.  The district court enforced the agreement but the Second Circuit reversed.  Over the objections of four judges who favored en banc review, the Second Circuit held that, where the cost for an individual of vindicating a federal statutory right outweighs the single claimant’s potential recovery, the claimant cannot be compelled to arbitrate the claim on an individual basis. 

The Supreme Court will now consider whether the Second Circuit’s decision is consistent with AT&T Mobility LLC v. Concepcion, where the Supreme Court held that California’s refusal to enforce arbitration agreements on similar grounds was preempted by the Federal Arbitration Act. See Petition for Writ of Certiorari, Opposition to Petition, and Reply in Support of Petition.  The precise question the Supreme Court has agreed to decide in AmEx is:  “Whether the Federal Arbitration Act permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim.”   

A decision in AmEx is likely to be important for wage and hour cases because some plaintiffs have argued that it is not economical to pursue FLSA claims on an individual basis and that it would therefore violate public policy to enforce an arbitration clause that included a waiver of class arbitration procedures.  There are certainly differences between the federal antitrust claims at issue in AmEx and FLSA claims.  Plaintiffs often need expensive economic experts in antitrust cases while FLSA violations can often be shown without experts.  Also, the FLSA includes Section 216(b), authorizing collective actions, whereas the federal antitrust laws (to our knowledge) do not themselves provide for non-individual claims.  But despite these differences, a decision in AmEx could either breathe new life into this line of attack on waivers of class arbitration procedures or put the argument to rest for good.  

Authored by Rob Whitman

Two courts on opposite sides of the country have upheld class action waivers in arbitration agreements in wage-hour suits, following the Supreme Court’s holding in AT&T Mobility v. Concepcion and rejecting the reasoning of the NLRB in D.R. Horton.

In San Diego, Judge Michael Anello held in Coleman v. Jenny Craig, Inc. that an arbitration agreement was enforceable under California law despite the inclusion of a class-action waiver that required arbitration “on an individual basis” and barred employees “from participating in a class action (existing or future) that was brought by any other party.”  The court specifically rejected challenges that this waiver rendered the agreement unconscionable, following several recent cases upholding similar waivers in light of Concepcion.

In Tampa, Judge Richard Lazzara reached a similar result in De Oliveira v. Citigroup North America, Inc., a case challenging the exempt status of Financial Analysts.  Following 11th Circuit precedent – one pre-Concepcion case upholding a collective action waiver in an FLSA lawsuit, and a post-Concepcion case enforcing a waiver in a consumer agreement – the court held that the plaintiffs were required to arbitrate their claims even though they must do so individually rather than collectively.  Judge Lazzara explicitly refused to follow either D.R. Horton or Raniere v. Citigroup, Inc., in which a District Court in New York invalidated the company’s waiver on grounds that the FLSA’s collective action provision is unwaivable.

Perhaps it was the sunny climates that helped these courts see the light.  Taken together, these two brief decisions are additional support for employers looking to enforce class action waivers in the face of aggressive resistance by the plaintiffs’ bar and the NLRB.

Authored by:  Noah Finkel, Brett Bartlett, Andrew Paley and Richard Alfred

Members of Seyfarth Shaw's Wage and Hour Litigation Practice Group have authored Wage & Hour Collective and Class Litigation, the first-of-its kind treatise on wage and hour litigation. Published by American Lawyer Media's Law Journal Press, the 912-page volume is the most comprehensive guide published to date that focuses on litigation strategy through all phases of wage and hour lawsuits, the area of high-stakes litigation that, as readers of this blog well know, has plagued employers in recent years.  Indeed, wage and hour lawsuits have outpaced all other types of workplace class actions in recent years, and have surged by more than 325% since the early 2000s.

The book blueprints the mechanics of wage and hour cases, examines how employers in multiple industries are targeted for wage and hour lawsuits, and provides substantive procedural and practical considerations that determine the outcome of such actions in today’s courts.  Principally designed to assist employment litigators and in-house counsel, Seyfarth’s book should also prove useful to senior management seeking to fend off wage-hour actions before they strike.

The guide has already received praise from the Honorable Elaine L. Chao, the 24th U.S. Secretary of Labor, who stated: “Given the recent explosion of wage and hour litigation, both management- and plaintiff-side attorneys will find this publication to be an invaluable reference. With its painstaking attention to the law and procedure, this treatise will certainly be the go-to resource when practitioners ponder questions of strategy and substance in the context of wage and hour cases.”

The book was authored by Noah Finkel, Brett Bartlett and Andrew Paley, who practice in the firm’s Chicago, Atlanta and Los Angeles offices respectively. Richard Alfred, Boston-based chair of  Seyfarth’s national Wage & Hour Litigation Practice, served as senior editor.  More than 70 other Seyfarth attorneys, many of them regular contributors to this blog, contributed to the book, which will be updated regularly.

Wage & Hour Collective and Class Litigation takes up 27 chapters and covers the complex rules surrounding all types of wage and hour lawsuits. These include claims under the Fair Labor Standards Act, claims under state wage and hour laws, or hybrid cases involving both, as well as special issues involving government contractors. It advises employers on:  how to respond to a wage and hour complaint; what to consider when deciding whether to remove a case to federal court; how to assess the particular merits of a claim; whether to settle; how to oppose plaintiffs' motion to facilitate notice for conditional certification; what kinds of affirmative defenses are best; and how to tilt the odds in favor of the defense.

Among topics covered by the book:

• The certification process and the impact of conditional certification
• Decertification and its sometimes unexpected consequences
• Defending against state law wage and hour class actions brought under Federal Rule of Civil Procedure 23
• Discovery issues and strategies in class and collective actions
• Special considerations under California law, one of the country’s leading venues for wage-hour cases
• Issues raised by ERISA claims in wage and hour cases
• Coordinating or consolidating multiple simultaneous class actions
• Meeting the duty to preserve information, including electronically stored information
• The pros and cons of arbitration
• Motions for summary judgment and the optimal time to file
• Civil remedies, including calculation of unpaid overtime and liquidated damages
• Actions by the Secretary of Labor to recover unpaid wages and overtime
• Defending  "independent contractor"  cases
• Calculating the  "regular rate"  for purposes of the FLSA

Wage & Hour Collective and Class Litigation can be purchased from Law Journal Press by clicking here.  Readers of Seyfarth's Wage & Hour Litigation blog can use discount code 2128982 at checkout to obtain a special discounted introductory price of $195 for the print & online access bundle or $163 for online access only. The purchase price includes a one-year long subscription to all updates.

Authored by Noah Finkel

Since the Supreme Court’s decision earlier this year in AT&T Mobility LLC v. Concepcion, nearly all federal courts that have been faced with the issue, have enforced collective action waivers of federal wage-hour claims in arbitration agreements, assuming that the agreement was not unconscionable under state law.  But a troubling recent decision by a federal district court judge in the Southern District of New York distinguishes class action waivers of state wage-hour claims, which it found generally enforceable, from collective action waivers under the Fair Labor Standards Act, which this judge concluded are per se unenforceable.

 If this ruling is adopted by other courts, it could allow employees complaining of alleged FLSA violations to proceed on a collective action basis and be permitted to issue notice to purportedly similarly-situated current and former employees, despite their agreement to bring wage-hour claims only in arbitration on an individual basis.  Employers’ mandatory arbitration programs containing class and collective action waivers, would therefore lose much of their efficacy.  Indeed, even if this ruling is allowed to stand in a single circuit – here, the Second – that circuit quickly would become a favored forum by plaintiffs’ counsel seeking to bring nationwide collective actions.

In Raniere v. Citigroup, Inc., mortgage loan officers filed a hybrid FLSA opt-in collective action and New York law opt-out Rule 23 class action claiming that they were misclassified as exempt from the FLSA’s overtime requirements and thus owed back overtime pay and liquidated damages.  The employer moved to compel arbitration of the claims brought by the employees who had signed arbitration agreements that, among other things, provided that FLSA claims could only be brought in arbitration and, then, only on an individual basis.

Plaintiffs made two arguments that the collective action waiver was unenforceable.  First, consistent with another recent decision out of the Southern District of New York, the plaintiffs argued that, relative to their potential recovery, the costs and fees attendant to bringing the claim on an individual, rather than collective, basis effectively barred them from bringing suit at all.  Given the substantial back overtime pay and liquidated damages that plaintiffs sought, the court rejected this argument. 

Second, Plaintiffs argued broadly that giving effect to the collective action waiver would mean that the FLSA would not serve its remedial and deterrent functions.  Relying on authorities, including the Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., several circuit courts have ruled that collective action waivers under the FLSA are enforceable, including the Third, Fourth, Fifth, Sixth, Seventh, and Ninth Circuits.  But the Raniere court nevertheless held otherwise in its 81-page opinion.  Rejecting those authorities, it reasoned that the right to proceed collectively is a substantive right that a party cannot waive.  It further reasoned that waiver of the right to proceed collectively is different in kind from waivers of the right to proceed as a class under Rule 23 because, unlike other federal statutes such as Title VII or the ADA 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” that “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.”  In the court’s view, the right to sue under the FLSA contains an “integral aspect” of “the ability of employees to pool resources in order to pursue a collective action.”  Under that view, an FLSA collective action waiver is, therefore, invalid per se.

The result of the Raniere ruling is that an arbitration clause requiring employees to bring their state law wage-hour claims in arbitration on an individual basis will be enforceable, while (even in the same case where there are both FLSA and state claims) the same arbitration clause will not be enforceable as to FLSA collective actions.  Employers would thus be in the difficult position of having to defend an opt-in collective action in federal court and deciding whether to compel arbitration of state wage-hour claims on an individual basis.  No other court has adopted such a seemingly illogical result.  Collective action waivers requiring FLSA claims to be arbitrated on an individual basis remain enforceable in every circuit that has considered this issue and under the precepts of Concepcion.  Whether the Second Circuit or ultimately the Supreme Court permit Raniere to stand remains to be seen.  In the meantime, employers should bear in mind that Concepcion did not necessarily end collective actions when an arbitration agreement contains a class and collective action waiver.

Co-authored by Richard Alfred and James Hlawek

A Massachusetts Superior Court judge recently invalidated an arbitration class action waiver, even though the U.S. Supreme Court found in its AT&T Mobility LLC v. Concepcion ruling earlier this year that federal law preempts state laws that interfere with an employer’s ability to enforce arbitration agreements with class action waivers.  This ruling shows that, at least in Massachusetts, courts may still be willing to invalidate class action waivers in arbitration agreements, particularly where the waivers are not carefully drafted or where small claims are at stake.

In Feeney v. Dell, Inc., two plaintiffs sought to bring a consumer class action against Dell arising out of Dell’s collection of sales tax on their computer service contracts.  Their claims were both worth less than $250.  The plaintiffs’ contracts with Dell required arbitration and prohibited arbitration class actions.  The arbitration provision did not allow consumers to be awarded anything more than the value of their claims.

In 2009, the Massachusetts Supreme Judicial Court invalidated Dell’s class action waiver because it found that the waiver was contrary to public policy.  The SJC ruled that, given the small amount of damages at stake, aggregation of claims was the only realistic option for the consumers to pursue their claims against Dell.

After the SJC’s ruling, the U.S. Supreme Court ruled in AT&T Mobility v. Concepcion that the Federal Arbitration Act (“FAA”) preempted a California rule that banned class action waivers in a certain category of consumer arbitration agreements.  The Supreme Court found that the California rule required companies with certain arbitration agreements to allow class-wide arbitration, even though class actions are more formal, riskier, and less efficient than individual arbitrations.  The Supreme Court therefore decided that the rule frustrated the company’s ability to resolve disputes efficiently, thereby interfering with one of the purposes of the FAA.

The Supreme Court pointed out that arbitration class action waivers could not be invalidated simply because claims were likely to involve small amounts that would not be prosecuted on an individual basis.  The Supreme Court added that the claim before it was likely to be prosecuted on an individual basis because the company agreed to pay claimants at least $7500 and twice their attorneys’ fees if they obtained an arbitration award greater than the company’s last settlement offer. 

After Concepcion was issued, Dell argued in Massachusetts Superior Court that the SJC’s earlier ruling was no longer valid because, similar to Concepcion, the SJC required Dell to allow arbitration class actions, thereby frustrating the purpose of the FAA.  The Superior Court judge, however, found that, unlike the arbitration provision in Concepcion, Dell’s provision did not include features that would make individual-based arbitration of small claims feasible.  The judge concluded that the SJC’s ruling did not frustrate the purpose of the FAA because efficient, individual-based arbitration was not a realistic option for Dell’s consumers.  The judge added that he would have upheld Dell’s class action waiver if Dell had made individual-based claims feasible.

Employers, at least in Massachusetts, should be aware of the Feeney decision because it shows that, regardless of Concepcion, some judges may continue their skepticism towards arbitration class action waivers, particularly where small-dollar claims are involved.  However, given the Supreme Court’s broad ruling in Concepcion, those waivers should be enforceable.  Employers that have or plan to have arbitration agreements with class action waivers may nonetheless want to consider taking a relatively conservative approach in their arbitration agreements that include class action waivers by making individual-based arbitrations more feasible for small-dollar claims.

As the law in this area is evolving rapidly, it is important for employers to consult with their employment counsel before implementing any new policies or programs in this area.

Authored by Tim Watson

On February 9, the Court of Appeals for the Third Circuit, in Vilches et al. v. The Travelers Companies, Inc. weighed in on the question of who decides whether and how arbitration will go forward.  The plaintiffs in the case are former insurance appraisers of The Travelers Companies, Inc., and they brought a combined state law/FLSA class/collective action in New Jersey state court.  Travelers removed the case to federal court and sought to compel the plaintiffs to arbitrate their claims pursuant to the arbitration agreement the plaintiffs signed while employees of Travelers.  The plaintiffs conceded that the arbitration agreement was enforceable but that they did not agree to the class action waiver that Travelers added after they had signed the original arbitration agreement. 

The district court in an oral ruling held that the plaintiffs were required to arbitrate their wage and hour claims and that the class action waiver was enforceable, which meant that each plaintiff would have to arbitrate his or her claims against Travelers separately.  The Third Circuit vacated the district court’s ruling regarding the class action waiver, deciding that its enforceability should be determined by the arbitrator.  The question of arbitrability—whether a dispute is subject to arbitration—is generally regarded as a question for the court to decide.  Yet, the Third Circuit referenced its opinion in Puleo v. Chase Bank USA, N.A., (reviewing United States Supreme Court’s opinion in Howsam v. Dean Witter Reynolds, Inc.), which clarified that “questions of arbitrability [should not be confused] with disputes over arbitration procedure, which do not bear upon the validity of an agreement to arbitrate.”   Thus, the appellate court ruled, the class action waiver was a procedural issue, which did not affect the enforceability of the arbitration agreement, and for that reason should be decided by the arbitrator.

But what if the class action waiver is unconscionable as the plaintiffs argued?  In that case, the court of appeals found, the question is not procedural, but raises a question of arbitrability that can be addressed by the court.  Quoting the Supreme Court again, the Third Circuit wrote, “In stark contrast with the question of arbitration procedure … when a party challenges the validity of an arbitration agreement by contending that one or more of its terms is unconscionable under generally applicable state contract law, a question of arbitrability is presented.”  The court then went on to analyze state unconscionability law and decided that Travelers’ waiver clause was not unconscionable. 

Interestingly, when discussing the question of whether the class action waiver was  unconscionable under state law, the Third Circuit did not mention the possibility that the state law is preempted by federal law—specifically, the Federal Arbitration Act.  The Supreme Court heard oral argument on this specific issue on November 9, 2010 in AT&T Mobility LLC v. Concepcion.

To summarize what the Third Circuit’s decision means:  Questions of arbitrability should be decided by the court.  Questions of arbitration procedure should be decided by the arbitrator.  A class action waiver is procedural (unless someone challenges it as unconscionable), and thus its applicability should be decided by the arbitrator.  Whether a class action waiver is unconscionable, however, is a question of arbitrability that is for the court to decide.  All of this, of course, is not a model of clarity; hopefully, the Supreme Court will straighten it out when it decides AT&T Mobility LLC v. Concepcion.