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Second Circuit Upholds Class Action Waiver, Cites Supreme Court in Rebuffing the Effective Vindication Doctrine
Practical Law Legal Update 5-537-3365 (Approx. 5 pages)
Second Circuit Upholds Class Action Waiver, Cites Supreme Court in Rebuffing the Effective Vindication Doctrine
by Practical Law Labor & Employment
| Published on 09 Aug 2013 • USA (National/Federal) |
The US Court of Appeals for the Second Circuit held in Sutherland v. Ernst & Young LLP, that a provision in an employment contract waiving the class action vehicle for wage and hour actions was lawful in light of recent Supreme Court precedent on the issue and in the absence of a contrary command from Congress regarding actions under the Fair Labor Standards Act (FLSA).
On August 9th, 2013, the US Court of Appeals for the Second Circuit issued an opinion in Sutherland v. Ernst & Young LLPreversing the district court and compelling arbitration pursuant to the Federal Arbitration Act (FAA).
From September 2008 through December 2009, Stephanie Sutherland worked for Ernst & Young as an audit employee on a salary-only basis. When Sutherland first accepted employment, she signed an offer letter which stated employment related disputes would be subject to mandatory mediation or arbitration, and the ability to pursue a dispute through a class action would be waived. The provision further specified that claims concerning wages and salary were subject to the terms of the arbitration agreement.
Sutherland later filed in federal court a putative class action against Ernst & Young to recover 151.5 hours of unpaid overtime wages, claiming Ernst & Young wrongly classified her as an employee exempt from overtime compensation.
On March 3, 2011, the district court denied Ernst & Young's motion to compel arbitration on an individual basis. Citing the Second Circuit's holding in In re American Express Merchants’ Litigation, the district court held that enforcement of the class action waiver provision would ban all proceedings by Sutherland against Ernst & Young because her claim was low-value but high-cost. Ernst & Young appealed.
While Ernst & Young awaited their appeal to the Second Circuit, the Supreme Court of the United States decided American Express v. Italian Colors Restaurant, which vacated the Second Circuit’s decision in In re American Express Merchants’ Litigation and held that the plaintiffs could not invalidate a waiver of class action under the effective vindication doctrine by showing that they had no economic incentive to pursue their claims individually.
In light of this decision, on August 9, 2013, the Second Circuit reversed the district court’s ruling and held:
- There was no apparent Congressional command forbidding class action waivers in the FLSA context because
- the FLSA text does not evince an intention to preclude a class action waiver;
- Supreme Court precedent has established that class action waivers are not barred in the FLSA context (see AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991)).
- Recent Supreme Court precedent found the "effective vindication" doctrine does not invalidate class action waiver just because a claim would otherwise be too costly for the plaintiff to pursue.
The court remanded the case to the district court with instruction to compel arbitration.
Employers in the Second Circuit's jurisdiction should consider Sutherland v. Ernst & Young LLP to be a victory. The Second Circuit joins the Fourth, Fifth and Eighth Circuits in finding that the text of the FLSA does not forbid class action waivers (see Owen v. Bristol Care, Inc., 702 F.3d 1050, 1055 (8th Cir. 2013); Carter v. Countryside Credit Indus., Inc., 362 F.3d 294, 298 (5th Cir. 2004); Adkins v. Labor Ready, Inc., 303 F.3d 496, 503 (4th Cir. 2002)). Importantly, the Second Circuit also found the Supreme Court's decision in American Express v. Italian Colors Restaurant effectively prevents litigants from pursuing expense arguments as a means to void a class-action waiver. FLSA plaintiffs may still seek "judge-made" exceptions to avoid arbitration, but after the Second Circuit's decision, the list of exceptions to be argued has undoubtedly narrowed.
Court Documents: