Wage & Hour Litigation Blog

Game Over: FLSA Collective Action Waivers Get Seal of Approval from Second Circuit

Posted in Arbitration Agreements

Co-authored by Robert Whitman and John R. Giovannone

Ever since the Supreme Court’s 2011 decision upholding class action waivers in arbitration agreements, courts around the country have generally fallen into line and enforced such clauses against a variety of contractual challenges raised by plaintiffs in wage-hour and other cases.  But some District judges in the Second Circuit had been holdouts, finding various grounds to invalidate waivers notwithstanding the Court’s endorsement.

In a concise opinion issued August 9, a Second Circuit panel appears to have put such resistance to an end.  While predictions can be perilous, the case should resolve any remaining doubts about the enforceability of class/collective action waivers in arbitration agreements in the Circuit.

The court’s decision in Sutherland v. Ernst & Young LLP [here], dispenses with two of the arguments that lower courts had used to invalidate class waivers in the wage-hour context:  that the FLSA confers an unwaivable substantive right to pursue a collective action, and that a collective action is the only means by which plaintiffs can effectively vindicate their rights given the low potential recovery in individual cases.

On the “unwaivable substantive right” argument, the court held unambiguously that the FLSA “does not include a ‘contrary congressional command’ that prevents a class-action waiver provision in an arbitration agreement from being enforced by its terms.”  In so holding, the court noted its agreement with the “consensus among our sister Circuits” that the statute “does not preclude the waiver of collective action claims.”

The panel did note, however, that one District Court within the Circuit had held to the contrary in Raniere v. Citigroup, Inc.  As we have reported previously [here], the same panel heard appellate arguments in Sutherland and Raniere on the same day.  As of this writing, Raniere still has not been decided.  Although Sutherland does not technically resolve Raniere, it effectively does so, and the resolution of the latter case now seems a foregone conclusion.

The court also left little doubt regarding its rejection of the “effective vindication” theory.  In light of the Supreme Court’s June 20 decision in American Express Co. v. Italian Colors Restaurant rejecting that theory (albeit in an antitrust context) [See discussion here], the Second Circuit’s hands were tied, as it readily acknowledged:  Despite the obstacles facing the vindication of Sutherland’s claims, the Supreme Court’s recent decision in Italian Colors . . . compels the conclusion that Sutherland’s class-action waiver is not rendered invalid by virtue of the fact that her claim is not economically worth pursuing individually.”

Sutherland also adds to the chorus of opposition to the NLRB’s ruling in D.R. Horton, in which the Board stated that arbitral class waivers violate employees’ rights under the National Labor Relations Act to engage in protected concerted activity.  The court said it would “decline to follow” D.R. Horton and “owe[s] no deference to its reasoning.”

Sutherland capped an excellent run for Ernst & Young’s enforcement of its class waiver provision.  A few weeks earlier, Judge Ronald M. Whyte of the Northern District of California issued a similar ruling upholding its class waiver clause in Morris v. Ernst & Young LLP [here].  Foretelling the decision in Sutherland, the court observed that “every circuit court that has addressed the [waiver] issue has held . . . that arbitration agreements can validly waive collective action because Congress did not intend to confer a nonwaivable right to a class action under the FLSA.”  The court went on to hold that “Congress did not intend collective actions to be a substantive right under the FLSA,” and that “such a right may be waived as a part of a valid arbitration agreement.”

For good measure, Morris joined in the disagreement with D.R. Horton as well.

Some employers with operations in the Second Circuit were waiting on the sidelines to see how the controversy around class waivers would play out.  Sutherland signals that the end of the controversy is nigh.  Barring further review by the Supreme Court or the full Circuit en banc, the arguments levied against waivers should now be consigned to history.