The Second Circuit Enforces Class Arbitration Waivers in Federal Fair Labor Standards Act (FLSA) Cases: Sutherland v. Ernst & Young, LLC and Raniere, et al. v. Citigroup Inc.

            The viability of class arbitration waivers as a means for companies to limit their exposure to class actions continues to be tested, including in the employment arena.  One of the first cases to probe the enforceability of class arbitration waivers in employment agreements after AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011) was Raniere, et al. v. Citigroup Inc. filed in the Second Circuit.  Raniere, et al. v. Citigroup Inc., 827 F. Supp. 2d 294 (S.D.N.Y. 2011) was decided by the District Court on November 22, 2011 and appealed to the Second Circuit Court of Appeals on December 19, 2011.  On August 12, 2013, nearly two years later, the Second Circuit entered a summary order reversing the District Court’s ruling which had denied Citigroup’s motion to compel arbitration of plaintiffs’ labor claims filed under the federal Fair Labor Standards Act (“FLSA”).  The Raniere District Court had held that Concepcion had no bearing on the federal claims before it and denied Citigroup’s motion to compel arbitration on the grounds that (1) the class arbitration waiver provision of the underlying employment arbitration policy was invalid since the right to collective action guaranteed by the FLSA cannot be waived as a matter of law and (2) the class waiver prevented Citigroup’s employees from effectively vindicating their federal statutory rights due to the prohibitive costs of pursuing their claims through individual arbitration.  In the six-paged, non-precedential summary opinion, the Second Circuit quickly discredited the Raniere District Court’s reasoning based upon the U.S. Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013) and the Second Circuit’s decision issued just three days prior in Sutherland v. Ernst & Young, LLC, No. 12-304-cv, 2013 U.S. App. LEXIS 16513 (2d Cir. Aug. 9, 2013), a similar FLSA class arbitration waiver case.  The Second Circuit’s quick work in Raniere was nearly two years in the making and, prior to the Supreme Court’s American Express decision, the Second Circuit might have been predisposed to find in favor of plaintiffs in Raniere and Sutherland on the grounds that the prohibitive costs of arbitration kept the plaintiffs from effectively vindicating their rights.  Ultimately, the Second Circuit joined “every Court of Appeals to have considered this issue” in finding that FLSA collective actions claims can be waived.  The basis of the Second Circuit’s decisions in Sutherland and Raniere can be summarized as follows:

  • The FLSA does not prohibit the waiver of class procedures; rather, the fact that one must opt-in to an FLSA collective action means that one certainly can waive participation in a collective action.
  • The vindication of rights doctrine does not invalidate the class arbitration waiver simply because the claims are not economically worth pursuing on an individual basis.

            Waiving Class Procedures under the FLSA.  The plaintiffs in Sutherland and Raniere argued that the text and legislative history of the FLSA create a right to a collective action that is “an integral and fundamentally substantive element of the FLSA” which cannot be waived.  The plaintiffs pointed to Section 16(b) of the FLSA which states that "[a]n action to recover the liability . . . may be maintained against any employer . . . in any Federal or State Court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves or other employees similarly situated," 29 U.S.C. § 216(b). (Emphasis added).  The Second Circuit rejected this argument based on Supreme Court precedent and the unanimity of other Circuit Courts that have weighed in on this issue:

As in the antitrust context, "[n]o contrary congressional command requires us to reject the waiver of class arbitration" in the FLSA context….every Court of Appeals to have considered this issue has concluded that the FLSA does not preclude the waiver of collective action claims. See Owen v. Bristol Care, Inc., 702 F.3d 1050, 1055 (8th Cir. 2013); Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 298 (5th Cir. 2004); Adkins v. Labor Ready, Inc., 303 F.3d 496, 503 (4th Cir. 2002). We agree with this consensus among our sister Circuits for multiple reasons.

The reasons articulated by the Second Circuit included: (1) the fact that FLSA § 216(b) also requires an employee with a FLSA claim to affirmatively opt-in to any collective action, therefore "[e]ven assuming Congress intended to create some 'right' to class actions, if an employee must affirmatively opt in to any such class action, surely the employee has the power to waive participation in a class action as well," and (2) Supreme Court precedent in Concepcion and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S. Ct. 1647, 114 L. Ed. 2d 26 (1991), which upheld class waivers, “inexorably lead to the conclusion that the waiver of collective action claims is permissible in the FLSA context.”  As the Supreme Court held in Gilmer, “the fact that [the statute] provides for the possibility of bringing a collective action does not mean that individual attempts at conciliation were intended to be barred.”

            The plaintiffs in Sutherland argued that the FLSA class arbitration waiver also violated the National Labor Relations Act (“NLRA”) based on In re D.R. Horton, Inc., 357 NLRB No. 184 (Jan 3, 2012) in which the National Labor Relations Board (“NLRB”) invalidated a class arbitration waiver in an individual employment contract on the grounds that the NLRA provides a substantive right to collective procedures that cannot be waived.  The Fifth Circuit  currently is considering the appeal from the NLRB decision in D.R. Horton, Inc. v NLRB, no. 12-60031.  In Sutherland, the Second Circuit joined the Eighth Circuit in declining to follow the NLRB’s decision, the propriety of which is under question.  Interestingly, the NLRB decision had relied upon the District Court opinions in Sutherland and Raniere, which the Second Circuit overturned.

            American Express and the Costs of Individual Arbitration.  Despite its agreement that the FLSA does not preclude waiver of class procedures, the Second Circuit was predisposed to strike down a class arbitration waiver due to the costs of individual arbitration.  The Second Circuit had issued multiple decisions in the saga of the American Express case, all of which struck down the class arbitration waiver at issue on the grounds that it interfered with the plaintiffs’ ability to effectively vindicate their federal statutory rights because the cost to pursue the antitrust claims in an individual action were proven by an expert to be cost prohibitive.  The Supreme Court’s ruling in American Express, however, overturned the Second Circuit.  As a result, the Second Circuit concluded that the Sutherland and Raniere plaintiffs could not use the vindication of rights doctrine to invalidate the class arbitration waivers by merely showing that "they ha[d] no economic incentive to pursue their [FLSA] claims individually in arbitration," despite the obstacles presented by individual arbitration.

            The Sutherland and Raniere decisions were not the only decisions from the Second Circuit to uphold a class arbitration waiver in an employment case.  Recently, the Second Circuit also upheld a class arbitration waiver in the context of a federal employment discrimination action in Parisi v. Goldman, Sachs & Co., 710 F.3d 483 (2d Cir. 2013).  In Parisi, the court upheld an arbitration provision that was silent regarding (and therefore precluded) class arbitration in a Title VII discrimination case on the grounds that there is no substantive statutory right to pursue a Title VII “pattern and practice”  discrimination claim, which can only be pursued in a class action.  The court held that “pattern and practice” refers to a method of proof and is not a free-standing substantive claim.  In the absence of explicit federal statutory requirements for access to class procedures, class arbitration waivers have fared fairly well in the employment arena thus far.

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