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The Use of Arbitration
Agreements to Avoid
Wage/Hour Collective and
Class Actions
Jeff Mokotoff Ford & Harrison LLP
271 17th Street NW, Suite 1900
Atlanta, GA 30363
Claims alleging violations of the Fair Labor
Standards Act (“FLSA”) and/or state
wage/hour law have increased
dramatically over the last few years.
Discrimination cases/class actions now are
outnumbered at least 10 to one by FLSA
collective actions for unpaid wages and
overtime.
The U.S. Department of Labor
Estimates that 80% of
Employers are Out Of
Compliance with State and
Federal Wage/Hour Laws
Enforceable Arbitration
• Typically we disfavor arbitration agreements
– Employers fare well in discrimination cases in federal
court
– Jury class waivers
– Employers generally must pay all costs for arbitration
– Split babies
– No summary judgment
Enforceable Arbitration
• Arbitration agreements short-circuit
increasing FLSA claims by including class-
action waiver in arbitration clause
• Stop class actions
• Plaintiffs‟ lawyers hate them
• Downside?
Enforceable Arbitration
• Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., 130
S. Ct. 1758 (2010)
– “[A] party may not be compelled under the FAA to
submit to class arbitration unless there is a
contractual basis for concluding that the party agreed
to do so.”
– Where the agreement to arbitrate does not expressly
authorize class claims, class arbitration cannot be
imposed on the parties.
On April 27, 2011, the United States Supreme
Court issued AT&T Mobility LLC v. Concepcion, 131
S. Ct. 1740 (2011), in which the Court addressed
the enforceability of an arbitration agreement in a
consumer contract that prohibited classwide
arbitration. In a 5-4 decision, the Court held that the
agreement was enforceable, reversing the Ninth
Circuit's determination that the agreement
prohibiting class claims was unconscionable under
California law.
Concepcion
Vincent and Liza Concepcion entered into an
agreement for the sale and servicing of cellular
telephones with AT&T. The agreement provided for
arbitration of all disputes between the parties. The
agreement specified that all claims be brought in
the parties' "individual capacity, and not as a
plaintiff or class member in any purported class or
representative proceeding." Subsequently, the
Concepcions filed suit against AT&T in federal court
over a dispute regarding their cell phone contract.
Concepcion
In Discover Bank v. Superior Court, 113 P.3d 1100
(2005), the California Supreme Court essentially held
that class action waivers in arbitration agreements in
the consumer context were unconscionable, and thus
unenforceable. In Concepcion, the United States
Supreme Court framed the issue before it as: "whether
§2 [of the FAA] -- Section 2 of the FAA makes
arbitration agreements "valid, irrevocable, and
enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract” -- preempts
California's rule classifying most collective-arbitration
waivers in consumer contracts as unconscionable."
Concepcion
The United States Supreme Court held that
requiring classwide arbitration would interfere with
the fundamental attributes of arbitration, and noted
that the "principle purpose of the FAA is to ensure
that private arbitration agreements are enforced
according to their terms." To that end, parties may
agree to limit the issues subject to arbitration,
arbitrate according to specific rules, and limit with
whom a party will arbitrate its disputes. So, the
Court held that the FAA preempts the Discover
Bank decision.
Employers currently have no greater weapons to
prevent collective- or class-action lawsuits by
employees than the Supreme Court's decisions in
Concepcion and Stolt-Nielsen S.A. v. AnimalFeeds
Int'l Corp., 130 S. Ct. 1758 (2010). In Stolt-Nielsen,
the Court held that "a party may not be compelled
under the [FAA] to submit to class arbitration unless
there is a contractual basis for concluding that the
party agreed to do so." In Concepcion, the Court
took an additional step in enforcing arbitration
agreements that contain class-action waivers.
Significantly, consumer contracts like those in
Concepcion are arguably more "unconscionable"
than those found in the employment context,
because employment claims are often brought
individually and are generally for more money than
consumer contracts. Further, the FLSA provides
automatic attorney‟s fees for a prevailing plaintiff,
providing an incentive for attorneys to bring these
claims regardless of whether they are in court or
before an arbitrator.
Cases since
Concepcion/Stolt-Nielsen
24 Hour Fitness (October 2011)
A Florida federal judge dismissed a proposed class action against
24 Hour Fitness USA Inc. and ordered employees to resolve their
overtime wage dispute through arbitration, as required under the
health club chain‟s policy. The plaintiffs are sales counselors at the
gym who sued 24 Hour Fitness in July for allegedly violating the
Fair Labor Standards Act by failing to pay them overtime wages
and asking them to doctor their time sheets to remove the overtime
hours they had worked. 24 Hour Fitness had informed the plaintiffs
of its arbitration policy in their employment applications, stating that
they had also signed an acknowledgment of receiving handbooks
containing the policy and agreeing to comply with it.
Zulauf v. Amerisave (November 2011)
A Georgia federal judge upheld an arbitration
agreement in a wage/hour collective action that
simply said “You agree that you shall arbitrate any
claim arising out of your employment or the
termination of your employment.” The Court stayed
the collective action and required the plaintiffs to
arbitrate. While the Court said the arbitrator must
decide whether the matter could be arbitrated as a
class, it also stated that, as a practical matter, the
arbitrator – in light of the AnimalFeeds decision –
could not allow the arbitration as a class.
Zulauf v. Amerisave (November 2011)
• Court expressly held Stolt-Nielsen applicable to FLSA cases:
– FN. 18 “Stolt-Nielsen‟s holding depended on the significant differences between class and individual arbitration, and that holding applies with equal force to „collective arbitration‟ under the FLSA, as there is no meaningful distinction between collective and class arbitration.”
On January 3, 2012, the National Labor
Relations Board (NLRB) held that an employer
violates the National Labor Relations Act
(NLRA) when it requires employees to sign an
agreement that precludes them from filing joint,
class, or collective claims regarding wages,
hours or other working conditions against the
employer in any forum, arbitral or judicial. See
D.R. Horton, Inc. and Michael Cuda, Case 12–
CA-25764 (Jan. 3, 2012).
In D.R. Horton, the Board interpreted the employer's "Mutual
Arbitration Agreement" (MAA), which required employees to
arbitrate any employment-related claims (with certain exceptions not
relevant to this case) and prohibited class-wide arbitrations. The
MAA also required employees to waive the right to file an
employment-related lawsuit in court against the employer. An
employee sought to initiate arbitration of a collective action under
the Fair Labor Standards Act (FLSA) against the employer;
however, the employer argued that the MAA bars arbitration of
collective claims. The employee then filed an unfair labor practice
(ULP) charge against the employer, claiming the employer violated
Section 8(a)(1) of the NLRA by maintaining the MAA prohibiting
class-wide arbitration.
The Board held that Section 7 of the NLRA
protects the rights of employees to engage in
"concerted activities for the purpose of
collective bargaining or other mutual aid or
protection . . . ." Section 8(a)(1) of the Act
makes it an unfair labor practice for an
employer "to interfere with, restrain, or coerce
employees in the exercise of the rights
guaranteed in" Section 7.
The Board attempted to reconcile this decision with the recent Supreme
Court ruling in AT&T Mobility v. Concepcion 131 S. Ct. 1740 (2011). The
Board had to acknowledge Concepcion's identification of the "overarching
purpose of the FAA," which is "to ensure the enforcement of arbitration
agreements according to their terms so as to facilitate streamlined
proceedings" and the Supreme Court's further holding that class arbitration
"sacrifices the principal advantage of arbitration." The Board opined,
however, that because Concepcion involved reversing the then-California
policy that any class action waiver in a consumer agreement (a/k/a
"contract of adhesion") was unconscionable, its ruling was distinguishable
because, in the Board's ruling "only agreements between employers and
their own employees are at stake."
D.R. Horton has already appealed the Board‟s decision to the Fifth Circuit.
Note that the Board's conclusion directly conflicts with at least two federal
court decisions – one from the Northern District of Georgia and one from
the Southern District of California – which recently rejected the plaintiffs'
arguments that a class action waiver in an arbitration agreement violated
the NLRA. See Slawienski v. Nephron Pharmaceutical Corporation, 2010
U.S. Dist. Lexis 130365 9 C.V. No 1:10-CB-0460-JEC (N.D. Ga. December
9, 2010) ("There is no legal authority to support plaintiff's position [that
waiver of a collective action under the FLSA violates the NLRA]. The
relevant provisions of the NLRA . . . deal solely with an employee's right to
participate in union organizing activities . . . It is apparent from the face of
the complaint that plaintiff and the other opt-ins are not „advocat[ing]
regarding the terms and conditions of [their] employment'… Rather plaintiffs
are pursuing FLSA claims in an attempt to collect alleged unpaid overtime
wages."); Grabowski v. C.H. Robinson Co., 2011 U.S. Dist. LEXIS 105680
(S.D. Cal. September 19, 2011) (agreeing with Slawienski reasoning and
holding that the plaintiff had failed to show his claim for unpaid wages
"implicated the „mutual aid or protection' clause" of the NLRA).