Federal Court Upholds Collective Action Waiver in Arbitration Agreement
As the surge of wage and hour collective actions continues, one strategy utilized by employers to avoid such multi-plaintiff litigations is the use of arbitration agreements with class/collective action waivers. In essence, such provisions mandate that an employee arbitrate any wage and hour and other (subject to certain limitations) disputes on an individual basis. Arbitration agreements containing these provisions prohibit individual and collective court actions as well as class/collective arbitration proceedings. While there are potential hurdles to the enforceability of these agreements -- such as consideration, unconscionability and even (as discussed here) the National Labor Relations Act – in general an arbitration agreement with a well-drafted class/collective action waiver is enforceable as to wage and hour claims. A recent decision of the United States District Court for the Eastern District of Virginia, Richmond Division, upholding such a class/collective action waiver is instructive. See Johnson v. Carmax, Inc., 2010 U.S. Dist. LEXIS 70700 (E.D. Va. July 14, 2010).
In Johnson, plaintiffs filed an FLSA collective action in federal court. The employer moved to dismiss, asserting that each plaintiff signed an arbitration agreement requiring resolution of all disputes on an individual basis through arbitration. In granting the employer's motion, the Court relied on the plain language of the relevant documents which "clearly prohibit Plaintiffs from bringing their claim in this Court and furthermore from pursuing this claim on a collective basis in any forum."
The Court rejected Plaintiffs' assertion that the failure of the relevant documents to mention "collective actions" mandated denial of the motion stating that the documents both specifically referred to FLSA claims being covered and mandated arbitration on an individual basis. Plaintiffs' argument that the arbitration agreement was procedurally and substantively unconscionable also was not given credence by the court. Judge James R. Spencer stated that the presence of "alleged unequal bargaining" power based on the fact that the agreement was a condition of employment was insufficient to demonstrate unconscionability. Similarly, the court held that since all remedies available to each plaintiff through a collective action are available through an individual arbitration proceeding: "[r]equiring Plaintiffs to arbitrate their claims individually does not diminish either the remedial or protective functions of the FLSA."
All employers must not only be vigilant in regard to wage and hour compliance but also constantly analyze potential strategies to limit the breadth of potential actions and properly implement such strategies. In fact, in another decision issued the same week in the very same federal district, an employer was unable to foreclose potential collective arbitration of wage claims. Davis v. Terminix International Co., 09-CV-00309 (E.D. Va. July 15, 2010). In Davis, the arbitration agreement did not expressly address collective action claims, and referred generally to the parties’ obligations being governed by North Carolina’s arbitration statute. The Court scheduled a hearing to determine whether the arbitration of the wage claims should proceed on a “consolidated” (i.e., collective action) basis with the approximately 30 opt-in Plaintiffs.
Of course, use of an arbitration agreement poses numerous other considerations for employers.
