By Howard L. Mocerf
In recent years, an increasing number ofemployers have promulgated policies that require their employees to submit employment claims to arbitration and to waive the rights to proceed in court and to a jury trial. The scope of the claims covered by these policies depends on what the employers want to cover, but they range from common law torts arising out of the employment relationship to wrongful termination claims, employment contract claims, claims under the employment discrimination laws and claims for violations of federal and state minimum wage and overtime laws. These policies generally exclude claims subject to the exclusive jurisdiction of federal or state agencies.
The primary impetus for these policies is the speed and cost of arbitration as compared to litigation. And some employers believe that a decision by a qualified arbitrator is preferable to a verdict that a jury might give in certain types of cases.
Some employers who have such policies have extended them to bar class or collective actions, limiting arbitration to be the resolution of individual employee complaints. The enforceability of class or collective action waivers has an added advantage for employers by limiting the potential liability that can result in such actions, particularly those alleging overtime and/or minimum wage violations under the federal Fair Labor Standards Act (FLSA) and counterpart state wage-and-hour laws where the alleged unlawful practices normally affect all employees in a particular job or jobs.
Private plaintiff FLSA suits are one of the most extensively brought employment suits in federal courts. The Administrative Office of the U.S. Courts reports that 6,180 such suits were filed in the 12 months ending Sept. 30 of last year, an average of almost 20 a court day. Some estimates value settlements and judgments in FLSA suits at about $1 billion annually.
The validity of arbitration policies containing class-action waivers was given a boost by the U.S. Supreme Court in AT&T Mobility v. Concepcion, ___ U.S. ___, 131 S Ct. 1740 (2011). Concepcion was a consumer case in which a cellphone contract between purchasers of AT&T cellphones and service required all disputes arising under the contract to be submitted to arbitration, but did not permit classwide arbitration. The court held that the Federal Arbitration Act (FAA) pre-empted California state decisional law, which considered classwide waivers in arbitration agreements unconscionable and invalid. However, the extension of Concepcion to classwide waivers in policies requiring arbitration of employment claims is in doubt and may require Supreme Court resolution.
In D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012), the National Labor Relations Board (NLRB) held that the right to pursue a class or collective action for alleged violations of the FLSA was protected concerted activity, a substantive right under the National Labor Relations Act (NLRA) and that Horton's arbitration agreement prevented the exercise of that right in violation of the NLRA. The NLRB interpreted Concepcion narrowly as applying only to conflicts between the FAA and state law and distinguished it on the theory that, while the FAA protects arbitration agreements to the extent that they do not require a party to waive a substantive rights, the right to pursue collective or class actions is a substantive right under the NLRA and not a procedural right. Accordingly, the NLRB concluded that the FAA does not conflict with the NLRA so to take precedence over the right of an employee to maintain a collective or class action over an employment claim.
On Jan. 12, Horton petitioned the 5th U.S. Circuit Court of Appeals to review the NLRB's decision. Although the D.R. Horton case involved an employee's effort to pursue a collective claim on behalf of himself and others for alleged FLSA violations, the NLRB's decision is not limited to FLSA claims. If the NLRB is ultimately upheld, class-action waivers may no longer be valid regardless of the type of claim an employee makes.
Citigroup has appealed a decision by Judge Robert Sweet of the Southern District of New York in Raniere v. Citigroup, Inc., 2011 U.S. Dist. LEXIS 135393 (Nov. 22, 2011), in which Sweet concluded that the legislative history of Section 16(b) of the FLSA, which provides for "opt-in" collective actions, demonstrates that the right to bring such actions is a substantive right that an employee cannot be required to waive under an employer arbitration policy. The district court reasoning of theCitigroup decision is consistent with the reasoning of a 2011 2nd Circuit case under the antitrust laws. It appears that Citigroup has an uphill fight.
However, the 3rd, 4th, 9th and 11th U.S. Circuit Courts of Appeals have upheld waivers of collective or class claims in employer arbitration policies against assertions that they are unenforceable because they eliminate the right to pursue collective actions under the FLSA, finding that there is nothing in the FLSA or its legislative history to suggest that Congress intended to confer a nonwaivable right to collective actions under the FLSA. A 2nd Circuit decision upholding the decision of the district court in Citigroup could set up an issue for a U.S. Supreme Court review.