Second Circuit Reverses District Courts And Enforces Individual Arbitration Agreements With Class Action Waivers In FLSA Cases

Author:Mr Howard Sokol
Profession:Holland & Knight

Howard Sokol is a Partner in our New York office

In American Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (June 20, 2013), the U.S. Supreme Court ruled, in an antitrust case, that an arbitration agreement that waives the right to proceed on a class basis is enforceable — even if the cost of arbitrating on an individual basis might exceed the cost of recovery. In two recent decisions, the U.S. Court of Appeals for the Second Circuit extended the Supreme Court's decision to overtime claims under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL). On Aug. 9, 2013, In Sutherland v. Ernst & Young LLP ("Sutherland"), the Second Circuit held that individual arbitration agreements containing class action waivers are enforceable under the FLSA, even though the costs to any particular plaintiff of individually arbitrating an overtime claim might very well exceed any potential recovery. On Aug. 12, in Raniere v. Citigroup, Inc., ("Raniere"), the Second Circuit rejected the argument that the FLSA creates an unwaivable substantive right to pursue claims on a collective basis.

Collectively, these two decisions confirm, and impliedly advise, that employers may limit the risk of class actions by requiring employees to agree to arbitrate FLSA and NYLL claims on an individual basis as a condition of employment.

Sutherland v. Ernst & Young LLP

Background and District Court Decision

In Sutherland, the plaintiff sued Ernst & Young (E&Y) in a collective action under the FLSA on behalf of herself and other potential plaintiffs, alleging that E&Y had misclassified her and similarly situated accounting personnel as exempt from overtime, and seeking unpaid overtime compensation. E&Y responded that when she was hired, Sutherland signed an offer letter which contained a provision explaining that "if an employment related dispute arises between [Sutherland} and [E&Y], it will be subject to mandatory mediation/arbitration under the terms of [E&Y's] alternative dispute resolution program, know as the Common Ground Program, a copy of which is attached." The Common Ground Program, essentially an arbitration agreement, specifically included "claims based on federal statutes such as ... the Fair Labor Standards Act, ... [and] claims concerning wages, salary and incentive compensation programs." The Common Ground Program further provided that a covered dispute cannot be brought in court and that any covered dispute "pertaining to different employees will be heard in separate proceedings."


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