The Use of Arbitration

Agreements to Avoid

Wage/Hour Collective and

Class Actions

Jeff Mokotoff Ford & Harrison LLP

271 17th Street NW, Suite 1900

Atlanta, GA 30363

jmokotoff@fordharrison.com

Claims alleging violations of the Fair Labor

Standards Act (“FLSA”) and/or state

wage/hour law have increased

dramatically over the last few years.

Discrimination cases/class actions now are

outnumbered at least 10 to one by FLSA

collective actions for unpaid wages and

overtime.

The U.S. Department of Labor

Estimates that 80% of

Employers are Out Of

Compliance with State and

Federal Wage/Hour Laws

Enforceable Arbitration

• Typically we disfavor arbitration agreements

– Employers fare well in discrimination cases in federal

court

– Jury class waivers

– Employers generally must pay all costs for arbitration

– Split babies

– No summary judgment

Enforceable Arbitration

• Arbitration agreements short-circuit

increasing FLSA claims by including class-

action waiver in arbitration clause

• Stop class actions

• Plaintiffs‟ lawyers hate them

• Downside?

Enforceable Arbitration

• Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., 130

S. Ct. 1758 (2010)

– “[A] party may not be compelled under the FAA to

submit to class arbitration unless there is a

contractual basis for concluding that the party agreed

to do so.”

– Where the agreement to arbitrate does not expressly

authorize class claims, class arbitration cannot be

imposed on the parties.

On April 27, 2011, the United States Supreme

Court issued AT&T Mobility LLC v. Concepcion, 131

S. Ct. 1740 (2011), in which the Court addressed

the enforceability of an arbitration agreement in a

consumer contract that prohibited classwide

arbitration. In a 5-4 decision, the Court held that the

agreement was enforceable, reversing the Ninth

Circuit's determination that the agreement

prohibiting class claims was unconscionable under

California law.

Concepcion

Vincent and Liza Concepcion entered into an

agreement for the sale and servicing of cellular

telephones with AT&T. The agreement provided for

arbitration of all disputes between the parties. The

agreement specified that all claims be brought in

the parties' "individual capacity, and not as a

plaintiff or class member in any purported class or

representative proceeding." Subsequently, the

Concepcions filed suit against AT&T in federal court

over a dispute regarding their cell phone contract.

Concepcion

In Discover Bank v. Superior Court, 113 P.3d 1100

(2005), the California Supreme Court essentially held

that class action waivers in arbitration agreements in

the consumer context were unconscionable, and thus

unenforceable. In Concepcion, the United States

Supreme Court framed the issue before it as: "whether

§2 [of the FAA] -- Section 2 of the FAA makes

arbitration agreements "valid, irrevocable, and

enforceable, save upon such grounds as exist at law or

in equity for the revocation of any contract” -- preempts

California's rule classifying most collective-arbitration

waivers in consumer contracts as unconscionable."

Concepcion

The United States Supreme Court held that

requiring classwide arbitration would interfere with

the fundamental attributes of arbitration, and noted

that the "principle purpose of the FAA is to ensure

that private arbitration agreements are enforced

according to their terms." To that end, parties may

agree to limit the issues subject to arbitration,

arbitrate according to specific rules, and limit with

whom a party will arbitrate its disputes. So, the

Court held that the FAA preempts the Discover

Bank decision.

Employers currently have no greater weapons to

prevent collective- or class-action lawsuits by

employees than the Supreme Court's decisions in

Concepcion and Stolt-Nielsen S.A. v. AnimalFeeds

Int'l Corp., 130 S. Ct. 1758 (2010). In Stolt-Nielsen,

the Court held that "a party may not be compelled

under the [FAA] to submit to class arbitration unless

there is a contractual basis for concluding that the

party agreed to do so." In Concepcion, the Court

took an additional step in enforcing arbitration

agreements that contain class-action waivers.

Significantly, consumer contracts like those in

Concepcion are arguably more "unconscionable"

than those found in the employment context,

because employment claims are often brought

individually and are generally for more money than

consumer contracts. Further, the FLSA provides

automatic attorney‟s fees for a prevailing plaintiff,

providing an incentive for attorneys to bring these

claims regardless of whether they are in court or

before an arbitrator.

Cases since

Concepcion/Stolt-Nielsen

24 Hour Fitness (October 2011)

A Florida federal judge dismissed a proposed class action against

24 Hour Fitness USA Inc. and ordered employees to resolve their

overtime wage dispute through arbitration, as required under the

health club chain‟s policy. The plaintiffs are sales counselors at the

gym who sued 24 Hour Fitness in July for allegedly violating the

Fair Labor Standards Act by failing to pay them overtime wages

and asking them to doctor their time sheets to remove the overtime

hours they had worked. 24 Hour Fitness had informed the plaintiffs

of its arbitration policy in their employment applications, stating that

they had also signed an acknowledgment of receiving handbooks

containing the policy and agreeing to comply with it.

Zulauf v. Amerisave (November 2011)

A Georgia federal judge upheld an arbitration

agreement in a wage/hour collective action that

simply said “You agree that you shall arbitrate any

claim arising out of your employment or the

termination of your employment.” The Court stayed

the collective action and required the plaintiffs to

arbitrate. While the Court said the arbitrator must

decide whether the matter could be arbitrated as a

class, it also stated that, as a practical matter, the

arbitrator – in light of the AnimalFeeds decision –

could not allow the arbitration as a class.

Zulauf v. Amerisave (November 2011)

• Court expressly held Stolt-Nielsen applicable to FLSA cases:

– FN. 18 “Stolt-Nielsen‟s holding depended on the significant differences between class and individual arbitration, and that holding applies with equal force to „collective arbitration‟ under the FLSA, as there is no meaningful distinction between collective and class arbitration.”

On January 3, 2012, the National Labor

Relations Board (NLRB) held that an employer

violates the National Labor Relations Act

(NLRA) when it requires employees to sign an

agreement that precludes them from filing joint,

class, or collective claims regarding wages,

hours or other working conditions against the

employer in any forum, arbitral or judicial. See

D.R. Horton, Inc. and Michael Cuda, Case 12–

CA-25764 (Jan. 3, 2012).

In D.R. Horton, the Board interpreted the employer's "Mutual

Arbitration Agreement" (MAA), which required employees to

arbitrate any employment-related claims (with certain exceptions not

relevant to this case) and prohibited class-wide arbitrations. The

MAA also required employees to waive the right to file an

employment-related lawsuit in court against the employer. An

employee sought to initiate arbitration of a collective action under

the Fair Labor Standards Act (FLSA) against the employer;

however, the employer argued that the MAA bars arbitration of

collective claims. The employee then filed an unfair labor practice

(ULP) charge against the employer, claiming the employer violated

Section 8(a)(1) of the NLRA by maintaining the MAA prohibiting

class-wide arbitration.

The Board held that Section 7 of the NLRA

protects the rights of employees to engage in

"concerted activities for the purpose of

collective bargaining or other mutual aid or

protection . . . ." Section 8(a)(1) of the Act

makes it an unfair labor practice for an

employer "to interfere with, restrain, or coerce

employees in the exercise of the rights

guaranteed in" Section 7.

The Board attempted to reconcile this decision with the recent Supreme

Court ruling in AT&T Mobility v. Concepcion 131 S. Ct. 1740 (2011). The

Board had to acknowledge Concepcion's identification of the "overarching

purpose of the FAA," which is "to ensure the enforcement of arbitration

agreements according to their terms so as to facilitate streamlined

proceedings" and the Supreme Court's further holding that class arbitration

"sacrifices the principal advantage of arbitration." The Board opined,

however, that because Concepcion involved reversing the then-California

policy that any class action waiver in a consumer agreement (a/k/a

"contract of adhesion") was unconscionable, its ruling was distinguishable

because, in the Board's ruling "only agreements between employers and

their own employees are at stake."

D.R. Horton has already appealed the Board‟s decision to the Fifth Circuit.

Note that the Board's conclusion directly conflicts with at least two federal

court decisions – one from the Northern District of Georgia and one from

the Southern District of California – which recently rejected the plaintiffs'

arguments that a class action waiver in an arbitration agreement violated

the NLRA. See Slawienski v. Nephron Pharmaceutical Corporation, 2010

U.S. Dist. Lexis 130365 9 C.V. No 1:10-CB-0460-JEC (N.D. Ga. December

9, 2010) ("There is no legal authority to support plaintiff's position [that

waiver of a collective action under the FLSA violates the NLRA]. The

relevant provisions of the NLRA . . . deal solely with an employee's right to

participate in union organizing activities . . . It is apparent from the face of

the complaint that plaintiff and the other opt-ins are not „advocat[ing]

regarding the terms and conditions of [their] employment'… Rather plaintiffs

are pursuing FLSA claims in an attempt to collect alleged unpaid overtime

wages."); Grabowski v. C.H. Robinson Co., 2011 U.S. Dist. LEXIS 105680

(S.D. Cal. September 19, 2011) (agreeing with Slawienski reasoning and

holding that the plaintiff had failed to show his claim for unpaid wages

"implicated the „mutual aid or protection' clause" of the NLRA).