Second Circuit Declines to Rehear Decision Allowing Class Action Waivers in FLSA Suits

The question concerning the enforceability of class action waivers in arbitration agreements to foreclose an employee’s ability to litigate collective actions under the Fair Labor Standards Act (“FLSA”) has been answered affirmatively in New York by the Second Circuit Court of Appeals. On October 15, 2013, the Second Circuit rejected a rehearing petition from Stephanie Sutherland, a former Ernst & Young LLP employee, who challenged a class action wavier in an arbitration agreement that barred her from pursuing a collective action for overtime pay under the FLSA. The decision lets stand the Circuit Court’s August 9th panel ruling that an employee can be required as a condition of employment to waive, pursuant to an arbitration agreement, the right to bring a collective or class action.

In Sutherland v. Ernst & Young LLP, the Second Circuit considered whether a collective action is a prescribed statutory procedure under the FLSA that cannot be waived in an arbitration agreement. In its August 9th decision, the Court held that as Congress authorized, but did not require, collective action claims in FLSA suits, it did not prohibit the individual waiver of such claims. Accordingly, the panel concluded that the Ernst & Young arbitration agreement was enforceable. Significantly, the Circuit Court in its August 9th decision rejected Sutherland’s argument against arbitration that the prohibitive cost of arbitrating an individual claim was grounds for voiding the class action waiver. On October 15th, the Second Circuit denied Sutherland petition to have the case reheard.

The Second Circuit’s decision to enforce class action waivers of FLSA suits through arbitration agreements supports a broad interpretation of the Federal Arbitration Act (“FAA”), which follows another similar, recent Supreme Court decision in American Express Company, et. al v. Italian Colors Restaurant, et. al. where the Supreme Court held that the FAA allows contractual class action arbitration waivers in antitrust lawsuits. The Second Circuit applied the rationale of American Express to FLSA claims.

Employers should consider that the scope of the Second Circuit’s holding Sutherland, insofar as it establishes a blanket authorization for class action waivers of all FLSA claims appears to be in conflict with the decision of the National Labor Relations Board in D.R. Horton, where the Board held that requiring an employee to agree not to bring an FLSA collective action constitutes an unfair labor practice under the National Relations Labor Act. Whether class action waivers in arbitration agreements are enforceable likely will continue to be decided on a case-by-case basis. Nevertheless, the Second Circuit’s ruling is consistent with all other Circuit Courts that have considered this issue.

For questions regarding the court’s ruling and class actions waivers generally, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.