An Employee’s Ability to Proceed Collectively Under the Fair Labor Standards Act Can Be Waived in an Arbitration Agreement Even When the Claim Is Not Worth Pursuing Individually

The Second Circuit issued a decision last week addressing whether an employee can invalidate a class-action waiver provision in an arbitration agreement when that waiver removes the financial incentive for the employee to pursue a claim under the Fair Labor Standards Act (FLSA).  In Sutherland v. Ernst & Young, LLP, 2013 WL 4033844 (2nd Cir. Aug. 9, 2013), the court found that an employee’s ability to proceed collectively under the FLSA can be waived in an arbitration agreement.  In Sutherland, the employee was a “low level” accountant whose majority work consisted of the performance of secretarial, clerical, and data-entry tasks.  Employee worked from September 2008 through December 2009 on a fixed salary of $55,000 per year, regardless of how many hours the employee worked.  Employee filed a collective and putative class action alleging that she was wrongfully classified as exempt from overtime requirements of the FLSA and New York state law.

After the employee filed her putative class action, the employer filed a motion to compel arbitration of the employee’s claims on individual rather than class-wide basis in accordance with the parties’ arbitration agreement.  When the employee was hired, she signed an arbitration agreement that included the following relevant provisions:

  1. Neither the Firm nor an Employee will be able to sue in court in connection with a Covered Dispute, and
  2. Covered Disputes pertaining to different [e]mployees will be heard in separate proceedings.

Employee argued that the entire provision requiring individual arbitration was unenforceable because requiring her to arbitrate individually prevented her from “effectively vindicating” her rights under the FLSA and New York state inasmuch as employee was seeking less than $2000 in damages and expert testimony established her costs and attorneys’ fees would exceed $200,000.  The District Court was persuaded by the employee’s arguments and denied the employer’s motion to compel arbitration.

The Second Circuit disagreed finding that the employee’s argument that proceeding individually in arbitration would be “prohibitively expensive” is not a sufficient basis to invalidate a class-action waiver provision in an arbitration agreement.  In reaching its conclusion, the Second Circuit noted that the “effective vindication doctrine” may be relevant in matters where the claim filing fee and administrative fees are so high as to make the forum impractical for an employee, but an employee is not prevented from “effectively vindicating” her claim simply because it is not economically feasible to pursue her FLSA claim individually in arbitration.  The Second Court also relied on the Supreme Court’s recent decision in American Express co. v. Italian Colors Restaurant, —— U.S. ——, 133 S.Ct. 2304, ——, L.E2d —— (2013) wherein the Court reminded lower courts to “rigorously enforce arbitration agreements according to their terms, including terms that specify with whom [the parties] choose to arbitrate their disputes, and the rules under which the arbitration will be conducted.”

McMahon Berger routinely advises clients on the factors to be considered when pursing an arbitration agreement, including the most recent court and administrative decisions. The applicability of the Federal Arbitration Act (FAA) and state arbitration and contract law have the potential to present significant obstacles to an enforceable arbitration agreement. Our attorneys assist clients to develop employment-related arbitration agreements tailored to their needs and compliant with the laws where their clients do business.  If interested in an arbitration agreement for your employees, contact our St. Louis Employment Law Firm at 314-567-7350.

authored by Brian C. Hey

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