Co-authored by David D. Kadue and Rocio Herrera

Seyfarth Synopsis: A California appellate court has held that unless a collective bargaining agreement includes an explicitly stated, clear, and unmistakable intent to waive the right to a judicial forum for statutory claims, arbitration of those claims will not be compelled. The CBA in the case, Vasserman v. Henry Mayo Newhall Memorial Hospital, did not waive the right to a judicial forum because its “Grievance and Arbitration” section failed to specify the California Labor Code provisions that would have to be arbitrated.

The Facts

Tanya Vasserman, a registered nurse, worked for Henry Mayo Newhall Memorial Hospital, under a CBA between the Hospital and the California Nurses Association. The CBA’s “Grievance and Arbitration” section provided for grievances culminating in arbitration, and defined a grievance as any dispute “arising out of the interpretation or application of a specific Article and Section of this Agreement during the term of the Agreement … as to events or incidents arising only at the Hospital.” The CBA outlined a three-step grievance procedure. Step three required the Hospital or the California Nurses Association to “file the grievance for binding arbitration pursuant to the rules of the Federal Mediation and Conciliation Service.” The CBA included articles on compensation, including overtime, and meal and rest periods. None of these articles referred to the grievance procedure or to remedies for violations.

Instead of filing a grievance, Vasserman sued in state court for violation of the California Labor Code, including claims for a failure to pay all regular and overtime wages and a failure to provide meal and rest breaks. The Hospital moved to stay the case and compel arbitration. The Hospital argued that Vasserman and the other employees she sought to represent in her putative class action were all covered by a CBA that included a Grievance and Arbitration section that clearly required the Hospital or the union to file a grievance for mandatory arbitration at step three. The Hospital argued that the grievance procedure explicitly waived the right to pursue claims in a judicial forum and Vasserman had to arbitrate her claims. The trial court denied the Hospital’s motion to compel arbitration, and the Hospital appealed to the California Court of Appeal.

The Court of Appeal’s Decision

The Court of Appeal affirmed the trial court’s decision. It found that the Grievance and Arbitration section defined a grievance as “any complaint or dispute arising out of the interpretation or application of a specific Article or Section of this Agreement.” The section also described a three-step grievance procedure, including step three in which any unresolved grievances may be submitted to arbitration. But it also limited the power of the arbitrator. The section provided that the arbitrator “shall be without authority to decide matters specifically excluded or not included in this Agreement.”

The court held that because the Grievance and Arbitration section did not specifically refer to the California Labor Code or other state or federal statutes, or include any language suggesting that the union intended to waive employees’ rights to bring statutory claims in court, the CBA contained no explicitly stated, clear, and unmistakable waiver of a judicial forum.

The court also rejected the Hospital’s argument that the parties, by including specific articles on pay and meal and rest breaks in the CBA, clearly and unmistakably intended to submit all disputes regarding those subjects to the grievance or arbitration process. The articles on pay and meal breaks did not refer to state laws. A waiver cannot be inferred from “broad, nonspecific language … not coupled with an explicit incorporation of statutory requirements.”

What Vasserman Means for Employers

We are reminded that to preclude judicial litigation of statutory rights, CBAs should specify any statutory rights that will be subject to grievance and arbitration procedures. These grievance procedures should also be incorporated by reference in any other section of the CBA discussing statutory rights, to ensure that the parties clearly and unmistakably state their intent to submit all disputes regarding those subjects to the grievance and arbitration procedures set forth in the CBA.

Authored by Simon L. Yang

Seyfarth Synopsis: When the California Supreme Court said no to PAGA waivers in its 2014 Iskanian ruling, we asked whether employers would boldly go where few have gone before and implement arbitration agreements requiring arbitration of PAGA claims. A recent California Court of Appeal decision issued in Perez v. U-Haul Company of California warrants revisiting that question.

Many employers stayed the course in 2014 and continued including PAGA waivers within their arbitration agreements, since numerous federal district courts continued disagreeing with and refusing to apply Iskanian’s logic.

And even when in 2015 the Ninth Circuit instructed federal district courts to apply Iskanian, many employers continued using arbitration agreements with PAGA waivers, since PAGA litigation could be severed and stayed while a plaintiff’s individual claims were arbitrated. If the employer prevailed on the individual claims in arbitration, the plaintiff would not be an aggrieved employee, would not have standing under PAGA, and would thus be unable to pursue mooted PAGA claims.

By 2016 plaintiffs have made the availability of that option scarcer. To avoid having to prove standing by prevailing on their individual claims before pursuing otherwise stayed PAGA claims, plaintiffs now commonly prefer to file PAGA-only lawsuits, without alleging individual claims.

The two putative Perez class representatives, however, had pursued both individual and PAGA claims. Predicting and seeking to avoid a stay of their PAGA claims, the Perez plaintiffs hopped onto the PAGA-only bandwagon by amending their complaints to allege a PAGA cause of action only—abandoning their individual claims, their roles as potential class representatives, and putative class members’ individual rights.

U-Haul fought back and sought to require arbitration of the predicate issue of whether the plaintiffs themselves had been subject to any Labor Code violations. Even though U-Haul was not seeking to preclude the PAGA cause of action but only to arbitrate the individual issues determinative of plaintiffs’ standing for their PAGA claims, the Court of Appeal rejected U-Haul’s argument. It reasoned that no individual issues remained at issue and that U-Haul’s arbitration agreement explicitly precluded arbitration of any representative issues.

Though Iskanian explicitly acknowledged that PAGA claims might be arbitrated, the Perez court then went full dictum. It opined that even if U-Haul’s arbitration agreement did not preclude its argument for arbitrating the plaintiff-specific issues determinative of PAGA standing, the PAGA cause of action could not be split between arbitration and litigation. But Iskanian doesn’t preclude this. What it precluded was the waiver of the right to pursue PAGA claims at all.

While it may be the case that an arbitration agreement cannot specify that an individual claim be created in a PAGA-only lawsuit, an arbitration agreement should be able to specify that representative claims be arbitrated—and specify that streamlined procedures be applied. Once again, will some enterprising employers consider going boldly where few have gone before?

Authored by Alex Passantino

It’s the week before Christmas, and we’ve accepted our mission,
The annual wage hour “sum-up” composition.
And to start it all off, we’ve got something nice,
‘Cause the Supreme Court addressed wage and hour stuff twice.

The year started out with the first one of those;
As Justice Scalia answered “What counts as clothes?”
With one simple phrase, the Court cleaned up a mess,
Clothes should be “commonly regarded as articles of dress.”

Gloves and hardhats, and fireproof suits,
And your shirt and your pants (and, presumably, boots),
They all count as clothes, from your toes to your face.
But not glasses, or plugs that can block out the bass.

Then later this year, the Court came back again,
To answer the question, “The clock, it starts when?
If you screen all your workers so they don’t steal your stuff,
And the clock stops before they’re in line, that’s enough.

The statute considered? ’Tis one that’s immortal.
The 68-year-old Portal-to-Portal.
With language so dated, it puts “whilst thou” to shame,
So we list the words here and we call them by name:

Principal Activity!  Integral! And Indispensable!
The words that define whether work is compensable.
The task’s required?  So what?  That’s not a fight you should pick.
You pay only those duties whose element’s intrinsic.

Now we leave SCOTUS cases and we turn to the rest,
The five or six topics our blog writers liked best.
Appearing so often, it borders on a fixation.
Are cases addressing increased decertification

And non-certification (you know what we mean).
Early on, or at trial, and all points in between.
Surveys kicked out.  Class reps were rejected.
Comcast has turned out to be nearly all we expected.

And even where Rio can dance on the sand,
Out came a case simply known as Duran.
If you’re asked to provide your trial proof logistics,
You can no longer just smile, shrug, and yell out “Statistics!”

So much litigation, so many cases to savor
And that’s only the issue of classbased arb waiver.
Add holding plaintiffs to standards when pleading a case,
And it kinda feels like employers are leading this race.

But just when you think wage claims might become less systemic,
We look at case numbers and declare “Epidemic!”
Interns, exemptions, independent contractor relations
Dominate dockets across the whole nation.

The government, too, makes employers squirm.
And this year, a new boss has gotten confirmed.
Those in restaurants, lodging, and others franchised,
Into DOL investigations, you’ll soon be baptized.

Now as we approach the end of the year,
And look forward to next, and the things we should fear,
At the top of the list, the elephant in the room,
Is the effort to make your exemptions go “Boom!

In early 2015, we’ll know what DOL may have planned,
If the rules out in Cali will apply ‘cross the land.
But before we say bye to the year that’s near past
Thanks for reading our blog.  You’ve made it a blast.


Authored by Gena Usenheimer

In a decision that is becoming more and more commonplace, last week the Central District of California enforced a class action waiver in an arbitration agreement, rejecting the panoply of arguments raised by the plaintiff in opposition.

In Appelbaum v. AutoNation, Inc., et al., the plaintiff sought to representative a putative class of service technicians and mechanics in a suit alleging the defendants failed to comply with California’s wage and hour and meal break laws.  In its April 8, 2014 decision, the Central District granted the defendants’ motion to compel arbitration on an individual basis.  Among other dubious arguments raised by the plaintiff, the Court rejected the contention that the Federal Arbitration Act did not govern the agreement as well as plaintiff’s argument that the arbitration agreement was so unconscionable as to be unenforceable under California law.  Dedicating much of its analysis to this unconscionability argument, the Court ultimately found that the substantive terms of this particular agreement were not so one-sided or unfair as to “shock the conscience” or to otherwise render the agreement unenforceable.   Notably, the Court found California PAGA claims are subject to arbitration on an individual basis and declined to follow D.R. Horton, expressly rejecting the argument that the National Labor Relations Act or Norris-LaGuardia Act preclude enforcement of class action waivers.

Thus, while employers utilizing class action waivers in arbitration agreements may still face scrutiny, particularly before the National Labor Relations Board, Appelbaum makes clear that the growing trend in the federal courts is to enforce them.

Authored by Jim Harris

The California Supreme Court heard oral argument in two important cases involving employment-related class actions.  From the tenor of and comments made at the argument, it appears likely that the ultimate results will be a mixed bag for employers.

The first case, Iskanian v. CLS Transportation of Los Angeles, LLC, which we reported on late last year, presents related questions regarding the impact on California practice of the decision in Concepcion, where the High Court overruled a California Supreme Court decision under which class action waivers in certain arbitration agreements were deemed unconscionable.  The threshold issue in Iskanian is whether another California Supreme Court decision, Gentry, also must fall under ConcepcionGentry had held that a class action waiver in an arbitration agreement should not be enforced if a trial court were to determine that “class arbitration would be a significantly more effective of vindicating the rights of affected employees than individual arbitration.”  Even the most liberal member of the California Supreme Court, Justice Liu, seemed prepared to conclude that Gentry likewise is preempted by federal law because it runs head-long into Concepcion’s recognition that “requiring the availability of class-wide arbitration interferes with fundamental attributes of arbitration.”  The Justices also seemed unimpressed by Plaintiff’s contention that they could simply water-down Gentry to bring it into compliance with Concepcion.  And they appeared resistant to endorsing the National Labor Relations Board’s ruling in D.R. Horton that class action arbitration waivers violate the National Labor Relations Act, several Justices noting the chilly reception that D.R. Horton received in federal appellate courts.

The Plaintiff in Iskanian seems more likely to prevail, however, on the second issue—whether an arbitration agreement may permissibly override the statutory right to bring representative claims under PAGA, the California Private Attorneys General Act of 2004.  The argument focused mainly on the nature of PAGA’s actions.   Defense counsel argued there is no principled distinction between a PAGA representative action and a conventional employment class action.  However, the Justices who addressed this question seemed skeptical.  Justices from across the ideological spectrum seemed inclined to characterize a PAGA action as belonging to the State, although prosecuted by individual plaintiffs.  On that premise, they seem inclined to rule that an arbitration agreement may not override the State’s  statutory right.

The Supreme Court granted review in the second case, Ayala v. Antelope Valley Newspapers, to resolve questions regarding how trial courts are to determine whether common issues predominate in wage-hour cases where one issue is whether the putative class members are employees or independent contractors.   The oral argument, however, barely addressed class action procedures or rules.  Rather, the argument focused almost entirely on determining the proper substantive standard for making the employee/independent contractor determination.   The Ayala case had been litigated in the lower courts on the premise that that the common law test adopted in Borello governed this inquiry.  The employer’s position was that the multi-factored inquiry required under Borello was inherently individualized, precluding class certification.  Prior to oral argument, the Supreme Court requested supplemental briefing as to whether the far broader, and simpler, “suffer or permit” standard embodied in California wage-orders should instead govern.   Plaintiff’s counsel jumped on this suggestion, arguing that certification should be upheld under the “suffer or permit” standard.  A proxy war ensued.  Two Justices—Justices Liu and Werdegar—clearly believe the broader substantive standard should control.  Several others—Justices Baxter, Chin and Corrigan—appeared to disagree strongly.  The ultimate views of the remaining two Justices were less clear.   What does seem clear is that the ruling on the standard will determine the outcome on certification.

Co-authored by Joshua Seidman and Nadia Bandukda

D.R. Horton Who?  Who is not the question here, it is why and what is going on with the NLRB saga?  Last week, the NLRB filed a petition for rehearing with the Fifth Circuit seeking reconsideration and reversal of the appellate court’s December 2013 decision regarding employee class action waivers. 

The Board’s petition seeks an answer to a simple question:  can employers require employees, as a condition of their employment, to agree to an arbitration provision that limits their ability to file class or collective actions in court?   The petition once again highlights the Board’s unwavering belief that the NLRA prohibits employees from entering into arbitration agreements that limit their ability to file class or collective actions because, in the NLRB’s view, it prohibits employees’ right to “engage in concerted activity for mutual aid or protection.”

Despite the Fifth Circuit’s decision, which found that an employer’s arbitration policy containing class and collective action waivers does not run afoul of the NLRA, the Board apparently now hopes to huff and puff and blow D.R. Horton’s house down by gaining momentum against the string of recent pro-arbitration Supreme Court and appellate decisions. 

Whether the Board’s rehearing campaign prevails will largely depend on the strength of its argument that the Fifth Circuit’s reliance on two Supreme Court decisions—Gilmer v. Interstate/Johnson Lane Corp. (1991) and AT&T Mobility LLC v. Concepcion (2011)—was misplaced.  The petition repeatedly points out that neither decision discussed or decided the issue presented in D.R. Horton—whether the NLRA “guarantees” the right to pursue a class or collective action.  Specifically, the petition argues that Gilmer and Concepcion did not touch upon the NLRA rights at stake in D.R. Horton and instead addressed “a strictly procedural forum waiver agreement that did not impair any substantive federal right and a law that conditioned enforcement of an arbitration agreement on the availability of class action procedures.”

With respect to Gilmer, the NLRB’s petition notes that the Fifth Circuit’s purported misinterpretation of the case caused it to improperly view the NLRA in the same light as other federal statutes, such as the ADEA or FLSA.  The NLRB argues that statutes such as the ADEA and FLSA are “individual rights” statutes, and thus cannot be appropriately compared to the NLRA, which “does vest employees with a substantive right to act in concert.”  The petition then draws parallels between class or collective lawsuits, on the one hand, and strikes and “other disruptive protests,” on the other hand, arguing that the former is “an alternative” to the latter.  The NLRB finally alleges that unified action by workers “of this sort” lays the groundwork for stronger collective bargaining.

Turning to Concepcion, the NLRB claims that the Fifth Circuit erred by not distinguishing between situations where procedural forum waivers are at issue, as in Concepcion, and situations where a party seeks to waive substantive rights.  Since the waiver in D.R. Horton “extinguishes its employees’…substantive right to litigate employment claims,” the NLRB alleges that the Fifth Circuit should have affirmed the Board’s decision invalidating the waiver.

Despite unfavorable decisions in multiple U.S. Courts of Appeals, as we reported, until the Supreme Court intervenes, employers must expect the D.R. Horton saga to remain in full effect and the NLRB to continue seeking new ways to advance its position.

Authored by Alex Passantino

It’s the week before Christmas, so you know it’s the time
For our review of the year—our wage-hour rhyme.
Our look-back on issues from the past 52 weeks
That grabbed the attention of you wage-hour geeks.

Leading us off is no big surprise:
FLSA filings continue to rise.
A 10% bump; they’re not going away,
‘Cause they’re filed at a rate of like 30 a day.

Next up on our list is that place at One First,
Where nine Justices use words like “affirmed” and “reversed.”
A flurry of cases from the Court so Supreme,
For the most part?  A wage-hour defense lawyer’s dream.

Individualized damages may take Rule 23 off the table
As we learned in the context of allocation of cable.
When damages cannot be measured en masse,
Then SCOTUS has ruled that there shall be no class. 

For state law wage cases, was Comcast the end?
Would class cert responses simply say “How will you calculate, friend?”
Then five short days later, the Court kicked back Ross.
‘Twas a heck of a hint that these classes get tossed.

T.L. Cannon and Ginsburg and Family Movie
And Martins they all made defendants feel groovy.
We’ll have a better idea of what this all means
When circuit number two rules in 2014.

Another huge trend that’s been sweeping the nation:
Supreme Court decisions on class arbitration.
With an agreement, class claims you can prevent.
But you’d better be sure that it says what you meant

For if your clause can be wiggled by the rules of contract,
Then with class arbitration, you might find yourself smacked.
But a well-drafted waiver will protect you from the many,
Even if each individual claim is worth but a penny.

And collective wage claims can be waived, if done clearly,
At least we’ve heard that in both Sutherland and Raniere
And the NLRB’s efforts at class waiver thwartin’?
Got kicked to the curb by the Fifth in D.R. Horton.

Our last big decision from SCOTUS this year
Makes the difference ‘tween class and collective more clear.
An FLSA case can be given the boot,
If an offer of judgment makes a named plaintiff moot.

The Court did not say if it must be accepted.
Or if failure to take it leaves the case unaffected. 
At least one court says offers kill claims class-wide.
Death by Rule 68—call it Genesis-cide.

Now, we’d be remiss if Sandifer was neglected,
Where the Supremes will decide which clothes are protected
From inclusion within the scope of “hours of work”
Be they fireproof gloves or what you wear when you twerk.

In the next year, the new government guys have big plans,
Investigating employers across the whole land.
Just be cautious if an investigator should mention:
“If you like it, then of course you can keep your exemption.”

Thank you for indulging this year’s aggregation,
Though we skipped over interns and halftime calculations.
We wish you success in 2014.
From your favorite wage hour lit blogging team.


Co-authored by Richard L. Alfred and Patrick J. Bannon

Employers that want to use traditional bilateral arbitration to resolve employment disputes won an important victory yesterday:  the Fifth Circuit overturned the National Labor Relations Board’s controversial D.R. Horton decision.  Nothing in federal labor law, the Fifth Circuit ruled, forbids employers and employees from agreeing to resolve disputes through individual rather than class or collective arbitration.

Yesterday’s ruling follows a string of pro-arbitration Supreme Court decisions, including Stolt-Nielsen, Concepcion and, this past June, American Express v. Italian Colors Restaurant.  Together with these cases, D.R. Horton further clears the way for employers to use individual arbitration to resolve wage and hour disputes under federal and state laws without subjecting themselves to Rule 23 class or Fair Labor Standards Act collective arbitration claims.

The D.R. Horton case arose from an overtime dispute between D.R. Horton and one of its former superintendents.  Like all D.R. Horton employees, the superintendent had agreed to arbitrate any disputes with the company on an individual basis only, without any class or collective arbitration.  Despite his agreement, the former superintendent notified the company that he intended to pursue arbitration on behalf of a nationwide class of similarly situated employees whom, he claimed, had been misclassified as exempt from overtime in violation of the FLSA.

D.R. Horton, of course, refused to participate in class or collective arbitration, citing the employee’s agreement.  In response, the former employee, filed a charge with the National Labor Relations Board, claiming that the agreement to forego class or collective arbitration violated his rights under the National Labor Relations Act.

Last year, the Board issued a surprising ruling in favor of the employee.  The Board explained that all employees — union and non-union, alike — have a federal right to join together to try to improve their working conditions, including a right to pursue litigation together on a class or collective basis.  Agreements requiring employees to resolve all disputes through individual arbitration only, the Board ruled, interfered with those employee rights.

All three of the federal circuit courts that had previously considered the Board’s D.R. Horton decision (the Second, Eighth and Ninth Circuits) found it unpersuasive.  Numerous lower courts have also rejected it.  But employees resisting individual arbitration continued to cite it in their efforts to arbitrate wage and hour claims on a class or collective basis.  Yesterday, the Fifth Circuit reversed the Board’s ruling and, in doing so, removed whatever shadow that ruling had cast over the enforceability of individual-only arbitration agreements.

The Board’s reasoning was flawed, the Fifth Circuit stated, because the Board paid insufficient attention to the Federal Arbitration Act.  In that statute, Congress provided that arbitration agreements must be enforced according to their terms, except in very limited circumstances.  Nothing in the text or the legislative history of the National Labor Relations Act, the appellate court ruled, warranted refusing to enforce as written an employer’s agreement with an employee to participate in arbitration only on an individual basis.

The Fifth Circuit relied on AT&T Mobility v. Concepcion, in which the Supreme Court explained the fundamental differences between individual and class arbitration and found the latter inconsistent with the FAA.  Accordingly, the Court of Appeals concluded, requiring an employer to allow class or collective arbitration would effectively deny the employer the benefits of arbitration — a result that would violate the FAA.

While the NLRB may not, as a matter of policy, choose to acquiesce in the Fifth Circuit’s opinion, yesterday’s decision is a compelling repudiation of the Board’s reading of the NLRA.  Unless the Fifth Circuit’s decision is overturned by the Supreme Court or an act of Congress (neither of which seems likely) employees are less likely to be successful in relying on federal labor law to resist enforcement of agreements to participate in individual arbitration.  Earlier this year, in American Express v. Italian Colors Restaurant, the Supreme Court held that agreements to participate in individual arbitration and forego class arbitration are enforceable even as to claims that are not economically feasible to pursue except on a class basis.  Thus, employees seeking to avoid enforcement of agreements limiting arbitration to individual claims have lost their two most widely used arguments.

While today’s decision is certainly a victory for employers, it includes one cautionary note.  The Fifth Circuit found that D.R. Horton’s arbitration agreement was not clear enough that employees retained the right to file unfair labor practice charges with the Board.  The court allowed to stand the portion of the Board’s decision requiring D.R. Horton to clarify its agreement on that point.  This portion of the decision warrants further study, especially for employers with operations within the Fifth Circuit’s jurisdiction.  This and related aspects of the Fifth Circuit’s decision are discussed in further detail in Seyfarth Shaw’s Management Alert, “Fifth Circuit Sets Aside NLRB Rule Prohibiting Class Action Waivers (12/03/13) at

Authored by Arthur J. Rooney

It seems like every few months we’re writing about another pro-arbitration decision.  A few months ago, for example, we wrote about the Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant, which held that class action waivers in arbitration agreements are enforceable under the Federal Arbitration Act (FAA) even if individual arbitration is economically unfeasible.  (See discussion here.)  This and other decisions build on AT&T Mobility LLC v. Conception, where the Supreme Court held that the FAA preempts a California rule that invalidated class action waivers in arbitration agreements as unconscionable.

So, should companies read these pro-arbitration decisions as giving them carte blanche to draft their arbitration agreements?  Can they say goodbye to class and collective actions?  Not necessarily.

Earlier this week, in Chavarria v. Ralphs Grocery Company, the Ninth Circuit refused to enforce a company’s arbitration agreement because, in the court’s eyes, it was unfair.  There, a deli clerk filed a putative wage-hour class action under California law.  Her employer moved to compel individual arbitration pursuant to its arbitration policy, which was part of the company’s job application.  The district court, however, denied the motion because it concluded that the policy was both procedurally and substantively unconscionable under California law.  The company appealed, arguing that its policy was not unconscionable and, in any event, the FAA preempts California law.  The Ninth Circuit rejected both arguments and affirmed the denial of the company’s motion to compel arbitration.

First, the court agreed that the arbitration policy was procedurally unconscionable because it was presented to employees on a “take it or leave it” basis as part of their job application and the terms of the policy were not provided to the plaintiff until three weeks after she had agreed to be bound by it.  The court also concluded that the policy was substantively unconscionable because it was unjustifiably one-sided.  Under the policy, the company would always select the arbitrator in employee-initiated arbitrations and the parties would split the arbitration fees regardless of the merits of the claim.  According to the court, the company’s “policy imposes great costs on the employee and precludes the employee from recovering those costs, making many claims impracticable.”

Next, the Ninth Circuit rejected the company’s argument that the FAA preempts California’s unconscionability doctrine because it applies to contracts generally and does not disproportionally affect arbitration agreements.  The court also opined that the Supreme Court’s AmEx decision does not preclude it from considering the cost that an arbitration policy imposes on employees in order for them to pursue a claim, as opposed to proving it.  In conclusion, the court reiterated that there needs to be “some level of fairness in an arbitration agreement,” and that “[f]ederal law favoring arbitration is not a license to tilt the arbitration process in favor of the party with more bargaining power.”

In light of some of the uncertainty that remains post-Concepcion and the availability of generally applicable contract defenses, which are expressly preserved by the FAA, companies that want the benefits of arbitration should carefully consider the provisions in their agreements to ensure that they do not arguably prevent the claimant from vindicating his or her rights.  More details about the state of the law and drafting considerations can be found in this Strategy & Insights memorandum.

Second Circuit Seal.jpgCo-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.