Two recent decisions from the U.S. Court of Appeals for the Second Circuit have reaffirmed the enforceability of employment-related arbitration agreements containing class action waivers. In Sutherland v. Ernst & Young and Raniere v. Citigroup, Inc. the Second Circuit held that the Federal Arbitration Act (FAA) requires courts to enforce a valid agreement to arbitrate even where the relevant substantive law – here, the Fair Labor Standards Act (FLSA) – permits enforcement via collective or class action.
Specifically, the Second Circuit rejected the argument that the right of a collective action is an integral and fundamentally substantive element of the FLSA that cannot be waived. Instead, the court held that the FLSA did not contain a contrary congressional command that renders class arbitration waivers unenforceable. This holding is in accord with prior rulings by the Fourth, Fifth, and Eighth Circuits, all of which held that an employee’s right to file an FLSA collective action was subject to contractual waiver, and the Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), upholding a similar collective action waiver in a suit brought under the Age Discrimination in Employment Act.
The court also rejected the notion that collective action waivers are unenforceable where any putative class member of the class or collection would be unable to vindicate his/her statutory rights due to the cost of litigation. For example, in Sutherland, the Plaintiff argued that the arbitration agreement she voluntarily signed should not be enforced because she would have to expend $160,000 in attorneys’ fees, plus court costs and expert witness costs, in order to litigate her meager $2,000 overtime claim. Relying on the United States Supreme Court’s recent decision in American Express Co. v. Italian Colors Rest, 133 S. Ct. 2304 (2013) (an antitrust case) the court rejected this “effective vindication” argument and held that a “class-action waiver is not rendered invalid by virtue of the fact that [an employee’s] claim is not economically worth pursuing individually.”
Although Sutherland and Raniere are not strictly binding on courts in other jurisdictions, they are nonetheless strong indicators of the increasing emphasis that federal courts – including the U.S. Supreme Court – are placing on enforcing the FAA. Equally importantly, these decisions make clear that the Supreme Court’s decision in American Express extends beyond the antitrust context, and applies to all types of arbitration agreements, including those between employers and employees.