Arbitration Agreements With Class and Collective Action Waivers Enforced

Second Circuit applies Supreme Court's recent ruling in American Express case and further rules that the FLSA collective action procedure can be waived and class and collective action waivers do not violate the NLRA.

In August 2013, the U.S. Court of Appeals for the Second Circuit handed down two decisions enforcing arbitration agreements with class and collective action waivers. These decisions continue the trend of enforcing arbitration agreements with class and collective action waivers in accordance with their terms.

On August 9, in Sutherland v. Ernst & Young LLP,[1] the Second Circuit applied the U.S. Supreme Court's recent decision in American Express Co. v. Italian Colors Restaurant[2] and reversed the district court's denial of Ernst & Young's (E&Y's) motion to compel arbitration. The Second Circuit ruled that the allegation that it would cost the plaintiff far more to litigate her claim for overtime under the Fair Labor Standards Act (FLSA) than the claim is worth was insufficient to avoid enforcement of the arbitration agreement. The court also ruled that the FLSA collective action procedure can be waived and refused to defer to the National Labor Relations Board's (NLRB's) decision in D.R. Horton that class and collective action waivers violate the National Labor Relations Act (NLRA).

On August 12, the court reaffirmed that ruling in Raniere v. Citigroup Inc.,[3] relying on Sutherland II and Amex II to reverse the district court's rulings that "(1) 'a waiver of the right to proceed collectively under the FLSA is unenforceable as a matter of law,' and (2) 'if any one potential class member meets the burden of proving that his costs preclude him from effectively vindicating his statutory rights in arbitration, the clause is unenforceable as to that class or collective[.]'"[4]

Background

Sutherland concerned an arbitration agreement entered into between E&Y and plaintiff Stephanie Sutherland, an auditor who sought to bring a putative class and collective action against the company for unpaid overtime. The arbitration agreement contained a waiver of the right to bring class or collective actions in arbitration or in court. Sutherland argued that the arbitration agreement was unenforceable for a host of reasons, including that she could not effectively vindicate her federal statutory rights under the FLSA through individual arbitration because the process would be too expensive. Specifically, Sutherland sought to recover only...