All the cool kids are talking about class arbitration lately. . . There are the two cases pending before SCOTUS, and now the Second Circuit confirms its place in the “in crowd” with a decision forcing a class of employees into arbitration in Parisi v. Goldman, Sachs & Co., __ F.3d __, 2013 WL 1149751 (2d Cir. Mar. 21, 2013).
In Parisi, three female former employees alleged gender discrimination by Goldman, Sachs and sought to proceed as a class action in court. The plaintiffs acknowledged having an arbitration agreement covering matters relating to their employment. However, they opposed Goldman’s motion to compel arbitration by arguing their arbitration agreement was invalid because it waived their statutory right under Title VII to pursue a “pattern-or-practice” claim of discrimination. (Interestingly, this whole case turns on the availability of class arbitration, but the quoted arbitration agreement does not explicitly preclude class arbitration. The plaintiffs apparently never argued that their arbitration agreement can be interpreted as authorizing class arbitrations, so the assumption underlying this opinion is that class arbitration is unavailable to these plaintiffs.)
The plaintiffs won at the district court, with that court concluding that because plaintiffs could not proceed as a class in arbitration, they could not pursue a Title VII pattern-or-practice claim, and therefore the arbitration agreement impermissibly waived the plaintiffs’ statutory rights. The Second Circuit disagreed and reversed. In short, the appellate court found there is ”no substantive statutory right to pursue a pattern-or-practice claim.” Citing earlier decisions of both the Second and Fifth Circuits, the court summarized that “‘pattern-or-practice’ simply refers to a method of proof and does not constitute a ‘freestanding cause of action.’” Therefore, plaintiffs could be compelled to arbitrate — even on an individual basis — without waiving any of their substantive statutory rights.
In the course of its decision, the court identified only two circumstances “in which motions to compel arbitration must be denied because arbitration would prevent plaintiffs from vindicating their statutory rights.” First, as in AmEx, that can happen when the costs of arbitration effectively preclude the plaintiffs from prosecuting their statutory rights. And second, that can happen when the arbitration agreement “interfere[s] with the recovery of statutorily authorized damages.” In other words, if a statute authorizes treble or punitive damages, the arbitration clause cannot bar those types of damages.
This is another case that appears to have been caught in Stolt-Nielsen‘s cross-hairs. The plaintiffs here devised their strategy, and filed their complaint, before Stolt-Nielsen was issued and significantly altered the framework for arguing class arbitration issues. In any case, this decision clarifies that alleging a pattern-or-practice of discrimination will not allow a plaintiff to keep its claims in court instead of arbitration, and also clarifies the current state of the law on when arbitration can be avoided because it does not adequately protect statutory rights. Of course, the state of the law may shift again in the coming months when the Supreme Court decides AmEx.