While courts continue to issue varied rulings regarding the appropriateness of collective action certification in FLSA litigations, employers continue to attempt to limit exposure to such broad allegations through several mechanisms. One of these strategies is inclusion of class/collective waiver provisions in arbitration, employment or separation agreements. Such provisions bar initiation and participation in class or collective claims. The enforceability of such waivers in arbitration agreements recently received a boost from the Supreme Court, which held a California rule which presumptively invalidated such waivers contained in arbitration agreements to be preempted by the Federal Arbitration Act. AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1744, 179 L. Ed. 2d 742 (2011).
In one of the first rulings issued applying Concepcion, a Connecticut federal court upheld a class and collective action waiver contained in an arbitration agreement, forcing two of the three named plaintiffs in the lawsuit (which seeks unpaid wages on behalf of a class of exotic dancers) to arbitrate their claims on an individual basis. D'Antuono v. Serv. Rd. Corp., 2011 U.S. Dist. LEXIS 57367 (D. Conn. May 25, 2011). D’Antuono is being defended by Jackson Lewis attorneys including Detroit partner Allan Rubin and Wage/Hour Practice Group head Paul DeCamp.
The Plaintiffs in D’Antuono were exotic dancers who performed at Defendant clubs pursuant to independent contractor agreements. These agreements provided for the leasing of space within the club by the dancer, and provided that any claims arising under the arrangement between the parties be submitted to individual arbitration. In holding that the two Plaintiffs in D’Antuono who were parties to the agreement at issue were required to submit their claims to individual arbitration (a third Plaintiff was not party to a signed agreement), the Court considered Plaintiffs arguments that the agreement was both procedurally and substantively unconscionable – i.e., that the agreement was formed under unlawful conditions, and that the terms of the agreement itself were unlawful.
Addressing the former, the Court held that the waiver provision – which was prominently located on page four of the four-page document, above the signature block – was not hidden from Plaintiffs, and that the unequal bargaining power between the parties did not render it “procedurally unconscionable.” As to the latter, the Court rejected the Plaintiffs’ contention that such arbitration would be “prohibitively expensive”, thus requiring invalidation of the agreement. This ruling was made possible in part by Defendants’ agreement not to enforce provisions of the agreements which could drive up expenses (such as the potential shifting of defendants’ attorneys fees to plaintiff if unsuccessful). Citing earlier Connecticut authority, the Court held that Plaintiffs’ claims were large enough to warrant pursuit on an individual basis, and thus the class or collective action mechanism was not necessary to recovery, particularly since the Plaintiffs could recover separate attorneys fees in the contemplated arbitration, just as if proceeding before the Court. Id. citing Pomposi v. Gamestop, Inc., 2010 U.S. Dist. LEXIS 1819 (D. Conn. Jan. 11, 2010).
D’Antuono highlights the potential use of arbitration agreements with class/collective action waiver provisions to avoid class/collective claims. Employers should consider arbitration agreements, as well as numerous other risk-reducing mechanisms, in consultation with counsel to minimize exposure to claims, particularly in areas where class exposure is prevalent. It is vital to note however that while Concepcion provides high court support for the class waiver concept in the arbitral setting, the law as to the enforceability of such waivers outside of the arbitration context is more unsettled.
[UPDATE] On June 7, 2011, the Court in D'Antuono granted Plaintiffs' request to certify its Order for interlocutory appeal to the Court of Appeals for the Second Circuit. D'Antuono v. Serv. Rd. Corp., 11-CV-33, Dkt. Entry 62 (D. Conn. June 7, 2011). In granting Plaintiffs' request, the Court observed that, in light of Concepcion, "there is now a great deal of uncertainty surrounding the continuing validity of the federal common law of arbitrability doctrines on which Plaintiffs rely" and that the "continuing validity of those doctrines . . . are . . . controlling questions of law."
[UPDATE] On August 8, 2011, the Court of Appeals for the Second Circuit denied Plaintiffs’ request for an interlocutory appeal of the ruling compelling arbitration, finding “an immediate appeal is unwarranted.” D’Antuono et al. v. Service Road Corporation, et al., Case No. 11-2451 at Dkt Entry 17 (2d Cir. Aug. 8, 2011).
