Class Action Waivers Enforced in Two Recent Second Circuit Decisions

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The Second Circuit Court of Appeals recently issued two opinions each holding that class action waivers may be enforced by employers in cases brought under the Fair Labor Standards Act (FLSA). These decisions — Sutherland v. Ernst & Young, LLP, 2013 U.S. App. LEXIS 16513 (2d Cir. 2013) and Raniere v. CitiGroup, Inc., 2013 U.S. App. LEXIS 16765 (2d Cir. 2013) — represent key victories for employers in their efforts to mitigate liability in wage and hour class actions.

In Sutherland, the Second Circuit held that a former Ernst & Young employee could not invalidate a class action waiver despite the fact that the waiver eliminated the financial incentive for the employee to pursue her individual claims under the FLSA. Relying on the Supreme Court’s June 2013 decision in American Express Co. v. Italian Colors Restaurant, the Second Circuit reversed the decision by the U.S. District Court for the Southern District of New York denying Ernst & Young’s motion to dismiss or stay the proceedings and compel arbitration of the employee’s FLSA claims.

The lower court’s decision denying the employer’s motion to dismiss relied on a previous Second Circuit case invalidating class action waivers based on the theory that enforcement of such a waiver would result in a plaintiff having to incur substantial costs to pursue an individual claim, effectively deterring them from moving forward on such a claim and depriving them of substantive rights under federal antitrust statutes (the “effective vindication” doctrine). In the American Express case, however, the Supreme Court held that the Federal Arbitration Act did not permit courts to invalidate class action waivers on the grounds that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeded the potential recovery. By expressly invalidating the “effective vindication” theory, the Supreme Court found that “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”

In Sutherland, the Second Circuit found that the FLSA did not contain any language barring waivers of class/collective actions. The finding that the FLSA does not bar class waivers is significant, because it establishes that an individual’s right to a collective action is not a substantive right under the FLSA and, as such, can be waived. Relying on American Express, the Second Circuit held that a plaintiff cannot evade a duly-executed class-action waiver based on the “effective vindication” doctrine by arguing that the recovery sought would be exceeded by the costs of individual arbitration.

One week after the Sutherland decision was handed down, the Second Circuit upheld a class waiver contained in CitiGroup’s arbitration policy, finding that the plaintiffs’ main argument — that the FLSA confers a substantive and unwaivable right to bring a collective action — was foreclosed by the American Express case and the court’s decision in Sutherland.

Given the potential exposure facing employers in wage and hour class and collective actions, Sutherland and Raniere provide significant victories for employers with respect to the enforceability of class waivers of FLSA claims. These decisions also signify a trend among circuit courts — including Ninth and Eight Circuits — rejecting the argument that the FLSA prohibits class action waivers.

Topics:  Class Action, Class Action Arbitration Waivers, Employer Liability Issues, FLSA, Wage and Hour

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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