Second And Ninth Circuits Allow Employers To Preclude Collective FLSA Claims, Rejecting NLRB Ruling

In January of this year, the Eighth Circuit was the first federal appellate court to refuse to adopt the National Labor Relations Board’s ruling on class action waivers in employment contracts.  (The previous year, in D.R. Horton, the NLRB declared it a violation of federal labor law for employers to require employees to waive their rights to class actions.)  Last month, the Second and Ninth Circuits joined the Eighth Circuit in that stance.

In Sutherland v. Ernst & Young, __ F.3d__, 2013 WL 4033844 (2d. Cir. Aug. 9, 2013), an employee brought a putative class action for violations of the Fair Labor Standards Act.  The employer, E&Y, moved to compel arbitration.  Because the lead plaintiff had a potential recovery of only $1,900, but her attorneys fees and expert costs would likely reach $200,000, the district court relied on the Second Circuit’s Amex III decision and denied the motion to compel arbitration.  Now that SCOTUS has reversed the Second Circuit in Amex III, however, the Second Circuit ruled that this case against E&Y must proceed in individual arbitrations.

While the Second Circuit did not address the NLRB ruling directly, it expressed its disagreement sub silentio.  It found that Congress did not preclude the waiver of collective action claims in the FLSA, and cited the Eighth Circuit’s decision in Owen v. Bristol Care repeatedly.  It also hinted that recent Supreme Court rulings make clear that the NLRB ruling is unsupported.

In contrast, the Ninth Circuit did directly address the NLRB ruling in Richards v. Ernst & Young, LLP, __ F.3d__, 2013 WL 4437601 (9th Cir. Aug. 21, 2013).  In Richards, three employees brought wage and hour claims against the employer (E&Y again).  After the Concepcion decision in 2011, the employer moved to compel arbitration, and the district court denied the motion, finding E&Y had waived its right to arbitrate.  Although there was “years of litigation” before E&Y moved to compel, the Ninth Circuit found that the employee had not proven any prejudice and therefore E&Y had not waived its right to arbitrate.  In particular, dismissal of some claims (without prejudice) was not prejudicial, nor was the expense of discovery.

Although the court did not need to address the NLRB ruling (because it found the employee had not proven prejudice and had not raised the NLRB argument at the district court level), it went out of its way to say that “the only court of appeals, and the overwhelming majority of the district courts, to have considered the issue have determiend tha they should not defer to the NLRB’s decision in D.R. Horton because it conflicts with the explicit pronouncements of the Supreme Court concerning the policies undergirding the Federal Arbitration Act.”  Therefore, the employee claims in Richards also had to proceed on an individual basis in arbitration.

What’s the opposite of a circuit split?  A circuit pile-on?  In any case, that’s what we’ve got so far on this issue.  The federal appellate courts are ganging up on the NLRB on the issue of contractually precluding class and collective waivers.

Topics:  American Express v Italian Colors Restaurant, Arbitration, Collective Actions, FLSA, NLRB, SCOTUS

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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