In an eagerly anticipated decision, last Friday the United States Court of Appeals for the Second Circuit issued its decision in Sutherland v. Ernst & Young. Applying the Supreme Court’s recent holding in American Express v. Italian Colors, the Court held that plaintiff Sutherland is obligated to pursue her claims for wage claims against Ernst & Young through individual arbitration, and rejected her assertion that such an individual action would not “effectively vindicate” her claims. Sutherland v. Ernst & Young LLP, 2013 U.S. App. LEXIS 16513 (2d Cir. Aug. 9, 2013).

In finding the waiver unenforceable, the District Court in Sutherland found that because plaintiff would have to “expend” approximately $200,000 in legal costs and attorneys’ fees in order to recover only $1,867 in unpaid overtime, she could not effectively pursue such a claim, notwithstanding the availability of fee shifting under the FLSA and New York Labor Law to compensate her counsel for pursuing a wage claim regardless of recovery. However, given the Supreme Court’s holding that “effective vindication” in the antitrust context was not a basis to set aside an otherwise binding arbitration agreement covered by the Federal Arbitration Act, the Second Circuit (the court which ruled to the contrary in Italian Colors in the first instance) stated that the decision “compels the conclusion that Sutherland’s class-action waiver is not rendered invalid by virtue of the fact that her claim is not economically worth pursuing individually,” as the district court had found. 

Because the FLSA does not contain a “contrary command” requiring rejection of a class action waiver barring a collective action as permitted under the Act – as “every Court of Appeals to have considered this issue has concluded” – the Supreme Court’s rejection of effective vindication was dispositive as to Sutherland’s challenge to her arbitration agreement. Contrary to Plaintiff’s argument, the Court also concluded that the FLSA does not prohibit waiver of the right to bring or participate in a collective action. Finally, the Court rejected the NLRB’s decision in D.R. Horton that class/collective waivers violate the NLRA. In a Summary Order dated August 12, 2013, the Circuit ruled that “substantially for the reasons stated in Italian Colors and Sutherland,” the District Court in Raniere v. Citigroup Inc., 827 F. Supp. 2d 294 (S.D.N.Y. 2011), erred in also ruling that “a waiver of the right to proceed collectively under the FLSA is unenforceable as a matter of law.” 

Sutherland and Rainere are emblematic of lower courts following Supreme Court decisions issued over the last several terms which provide that absent highly unusual circumstances, arbitration agreements will be enforced as drafted. Employers must assess the utility of an alternative dispute resolution program, including agreements to arbitrate disputes and class/collective action waivers.