Blog-Arbitration1.jpgSeyfarth Shaw’s Wage & Hour Litigation Practice Group

Following the Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion and Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., nearly all federal courts have enforced agreements to arbitrate FLSA claims. A few courts, however, have refused to apply Concepcion and Stolt-Nielsen to FLSA claims by relying on two arguments that most defendants would contest:  (1) whether an arbitration agreement that is silent on the issue of class arbitration prohibits collective arbitration under the FLSA, as Stolt-Nielsen suggests, and (2) whether an agreement, implicit or explicit, to waive collective arbitration of FLSA claims is conscionable and enforceable, as Concepcion suggests it should be.  On March 14, the Third Circuit Court of Appeals hinted at but did not take a clear position on either of these issues in Quilloin v. Tenet HealthSystem Philadelphia, Inc. et al

The U.S. District Court for the Eastern District of Pennsylvania in Quilloin had denied the Defendant’s motion to compel arbitration of Plaintiff’s FLSA claims on the grounds that disputes over material facts had to be resolved before it could determine whether the arbitration agreement was substantively and procedurally conscionable under Pennsylvania law.  One of the genuine disputes of material fact that the District Court believed it needed to resolve was whether Plaintiff’s potential damages were large enough that she would be incentivized to proceed with her FLSA claims even if she had to do so on an individual, rather than a collective action, basis.  Even though the District Court believed that, because the agreement was silent as to class arbitration, the arbitrator should decide whether the arbitration agreement prohibited class arbitration, it nevertheless went on to question whether the arbitration agreement was conscionable and enforceable.

The Third Circuit reversed the District Court and found that there was no basis to deny the defendant’s motion to compel.  It instructed the District Court to stay litigation and compel arbitration while leaving to the arbitrator the decision of whether the arbitration agreement prohibited class arbitration.  The Third Circuit suggested that the issue of substantive conscionability could arise depending on how the arbitrator interpreted the agreement’s silence on the class arbitration issue but also acknowledged the Supreme Court’s decision in Stolt-Nielsen that “[s]ilence regarding class arbitration generally indicates a prohibition against class arbitration.”  Perhaps further hinting at the direction a would-be arbitrator should take, the Third Circuit then quoted the Supreme Court’s list of reasons in Concepcion as to why arbitration is “‘poorly suited’” to handling class actions.  Finally, the Third Circuit noted that Pennsylvania’s law prohibiting class action waivers “is surely preempted by the [Federal Arbitration Act] under Concepcion.”

Notably missing from the Third Circuit’s discussion is any mention of the National Labor Relation Board’s January 3, 2012 ruling in D.R. Horton, Inc. or the handful of federal court decisions to consider the NLRB’s pronouncement in D.R. Horton that a collective or class arbitration waiver is unenforceable under the NLRA.  Taken together, the Third Circuit’s discussion of the Supreme Court’s precedents and lack of discussion of the NLRB’s position suggest that the Third Circuit would find Stolt-Nielsen and Concepcion to apply to an arbitration agreement covering a plaintiff’s putative FLSA collective action claims.  The Third Circuit, however, stopped short of a direct pronouncement on these issues.