Class Arbitration Waivers: More Uncertainty

[author: Mark W. Batten]

Continuing on our recent theme of conflicting rules on class issues, Judge Kimba Wood of the Southern District of New York ruled March 3 (PDF) that Ernst & Young could not enforce a provision in its employment contracts with its accountants that waived class claims and required claims against E&Y, including overtime claims, to be arbitrated.  Judge Wood held that wage and hour claims can't, as a practical matter, be litigated except on a class basis, because the amount of any individual's claim is too small to interest a plaintiff's attorney, and the expenditure on fees would not be justified.  Since the FLSA permits recovery of attorneys' fees, that argument would not seem to carry much weight, but E&Y's arbitration agreement made fee awards and their amount discretionary with the arbitrator, imposing more of a burden on the plaintiff.

In any event, Judge Wood's decision comes on the heels of the Third Circuit's February 9 decision (HTML) in Vilches v. Travelers Companies (labeled "not precedential" but still of interest), in which the Court of Appeals rejected an argument that class arbitration waivers are unconscionable in the unemployment context.  The Third Circuit focused its analysis on distinguishing waivers in employment situations from waivers in consumer cases, so its reasoning and Judge Wood's do not really confront each other.  But it is interesting that the Third Circuit relied on the Supreme Court's Stolt-Nielsen decision from last term, while Judge Wood went to some lengths to distinguish it.  Perhaps the Supremes' decision in AT&T v. Concepcion, on the docket this Term, will bring some clarity.

Until then, though, employers who favor arbitration and class waivers will have to draft them carefully or find that their enforceability varies from jurisdiction to jurisdiction.