Eastern and Southern District Courts Compel Plaintiffs to Arbitrate their FLSA Collective Action Claims on an Individualized Basis

by Sheppard Mullin Richter & Hampton LLP

In February, two New York Federal District Court decisions joined other recent federal cases in enforcing arbitration agreements that preclude employees from bringing their Fair Labor Standards Act (“FLSA”) claims on a collective basis and required the employees to individually pursue their claims in arbitration. See Torres v. United Healthcare Servs., Inc., No. 12 Civ. 923 (DRH)(ARL) (E.D.N.Y. Feb. 1, 2013); Ryan v. JPMorgan Chase & Co., No. 12 CV 4844 (VB) (S.D.N.Y. Feb. 22, 2013). Both of these decisions are discussed below.

Torres v. United Healthcare Services, Inc.

In Torres, the plaintiffs, who were former sales representatives of defendant United Healthcare Services, Inc. (“United Healthcare”), asserted collective action claims against United Healthcare for alleged violations of the FLSA and the New York Labor Law. United Healthcare moved to dismiss the complaint and to compel the plaintiffs to individually arbitrate their claims pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4 (2000). United Healthcare based their motion upon the fact that the plaintiffs signed arbitration agreements at the commencement of their employment in which they agreed “to resolve most employment-related disputes . . . that are based on a legal claim through final and binding arbitration” including claims “under any federal, state or local statute . . . relating to employment discrimination, terms and conditions of employment, or termination of employment including . . . the Fair Labor Standards Act.” The arbitration agreements also contained a class and collective action waiver that stated:

Any dispute covered by this Policy will be arbitrated on an individual basis. No dispute between an employee and UnitedHealth Group may be consolidated or joined with a dispute between any other employee and UnitedHealth Group, nor may an individual employee seek to bring his/her dispute on behalf of other employees as a class or collective action.

The plaintiffs opposed United Healthcare’s motion by arguing, among other things, that the arbitration agreements could not be enforced because the FLSA expressly provides them with the right to proceed as a collective action, and requiring plaintiffs to individually arbitrate their claims would prevent them from vindicating their statutory rights under the FLSA. The Honorable Denis R. Hurley rejected the plaintiffs’ argument for several reasons.

First, Judge Hurley dismissed the plaintiffs’ reliance on the National Labor Relations Board’s (“NLRB”) decision in D.R. Horton, Inc., 357 N.L.R.B. No. 184, 2012 WL 36274, at *1 (NLRB Jan. 3, 2012), which held that collective action waivers in arbitration agreements violate the National Labor Relations Act. Judge Hurley explained that the NLRB’s opinion is not entitled to any deference by the Court. Judge Hurley further explained that even if the Court were to give deference to the holding in D.R. Horton, the Torres matter fell outside the scope of such limited holding because the Torres agreement did not preclude: (i) the plaintiffs from filing a complaint with an administrative agency, such as the Department of Labor; and (ii) any such agency from investigating and, if necessary, filing suit on behalf of a class of employees.

Second, Judge Hurley concluded that the plaintiffs failed to demonstrate that the economic realities involved in proceeding on an individual basis effectively prohibited them from pursuing their statutory claims. In support of this argument, the plaintiffs relied upon the Second Circuit’s decision in In re American Express Merch. Litig., 667 F.3d 204 (2d Cir. 2012), aff’d on reh’g Amex II, 634 F.3d 187 (2d Cir. 2011), reh’g en banc denied by 681 F.3d 139 (2d Cir. 2012), cert. granted, American Exp. Co. v. Italian Colors Restaurant, Docket No. 12-133, 2012 WL 3096737, at *1 (Nov. 9, 2012)(“AMEX III”) and argued that the costs of arbitration would so exceed the potential benefit, that they would be practically precluded from vindicating their statutory rights if required to proceed on an individual basis. At the outset, the Court noted that when a party seeks to invalidate an arbitration agreement on the grounds that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs. Here, the plaintiffs failed to provide the Court with any information regarding the cost of arbitrating or litigating their individual FLSA claims. Judge Hurley further noted that the arbitration agreement provided that any employee who initiated an arbitration would only be responsible for a maximum of twenty-five dollars in AAA fees as well as his own costs and attorney’s fees. Moreover, the plaintiffs failed to provide any information or estimates regarding any individual’s projected recovery. Based upon these facts, Judge Hurley concluded that the plaintiffs failed to meet their burden.

Lastly, Judge Hurley rejected the plaintiffs’ interpretation of the FLSA and its legislative history and concluded that neither the FLSA’s plain language, nor its relevant legislative history, evidence any congressional intent to preclude employees from waiving their right to bring their FLSA claims as part of a collective action.

Accordingly, Judge Hurley granted United Healthcare’s motion and compelled the plaintiffs to proceed with their claims in arbitration on an individual basis.

Ryan v. JPMorgan Chase & Co.

In Ryan, the plaintiff, who was a former Assistant Branch Manager for defendant JPMorgan Chase & Co. (“JPMorgan”), attempted to bring her FLSA claims against JPMorgan on a collective basis. JPMorgan moved to dismiss the complaint and to compel the plaintiff to individually arbitrate her claims. JPMorgan based its motion upon the parties’ Binding Arbitration Agreement (“BAA”) wherein the plaintiff agreed to “submit employment-related disputes . . . to binding arbitration . . . .” The BAA made it clear that such disputes included “all legally protected employment-related claims . . . which arise out of or are related to [her] employment or separation . . . including, but not limited to, claims . . . [under] the Fair Labor Standards Act . . . .” The BAA also stated that such claims must be “submitted on an individual basis[,]” and that “[n]o claims may be arbitrated on a class or collective basis.”

The plaintiff set forth three primary arguments in opposition to JPMorgan’s motion: (i) the plaintiff cannot waive her right to bring a collective action; (ii) compelling individual arbitration will prevent the plaintiff from vindicating her statutory rights; and (iii) the BAA runs afoul of the NLRA and the Norris-LaGuardia Act (“NLA”). The Honorable Vincent L. Briccetti rejected each of these arguments.

First, Judge Briccetti concluded that collective action waivers are not per se unenforceable. Judge Briccetti reasoned that the FAA’s “overarching purpose” is to “facilitate streamlined proceedings” by enforcing “arbitration agreements according to their terms.” Judge Briccetti noted that while the Second Circuit has not yet addressed collective action waivers in FLSA cases, the Second Circuit held in AMEX III that “class waivers are not per se unenforceable so long as the plaintiff has the opportunity to vindicate her statutory rights.” Thus, Judge Briccetti rejected the plaintiff’s argument that she could not waive her right to proceed on a collective basis.

Second, Judge Briccetti rejected the plaintiff’s argument that compelling the plaintiff to individually arbitrate her FLSA claims will prevent her from vindicating her statutory rights. More specifically, the Court found that the plaintiff failed to establish that “arbitration would be prohibitively expensive.” In reaching this conclusion, Judge Briccetti noted that the plaintiff’s own estimate of her damages was nearly double that of the damages sought in AMEX III while her own estimate of her expenses was substantially less than those in AMEX III. In light of those facts, the Court rejected the plaintiff’s argument.

Finally, the Court found that the plaintiff’s reliance on the NLRA and NLA were unpersuasive. As Judge Briccetti explained, the NLA does not apply to arbitration agreements like the ones at issue in Ryan. Moreover, Judge Briccetti joined other courts in reaching the conclusion that the NLRA has no impact upon whether a plaintiff has the right to bring a collective action pursuant to the FLSA.

Judge Hurley’s and Judge Briccetti’s decisions shed additional light on the continuously evolving dispute regarding the enforceability of arbitration agreements that prohibit individuals from bringing FLSA claims against their former employers on a collective basis.

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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