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SDNY Judge Holds FLSA Collective Action Waivers Unenforceable as a Matter of Law

A recent case out of the U.S. District Court of the Southern District of New York, Raniere v. Citigroup Inc., No. 11 Civ. 2448, 2011 WL 5881926 (S.D.N.Y. Nov. 22, 2011), holds that FLSA collective action waivers are unenforceable--as a matter of law. This a groundbreaking decision that offers a roadmap for defeating collective action waivers in the wake of AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).

The plaintiffs in this case were former Citi loan officers who brought an FLSA collective action against Citi, alleging that the company had misclassified them as exempt employees and unlawfully denied them overtime pay. In this 81-page opinion, Judge Robert Sweet actually decided three motions: (1) defendants' motion to transfer, dismiss, or stay the lawsuit based on a first-filed action in Florida; (2) defendants' motion to compel individual arbitration; and (3) plaintiffs' motion for conditional certification under 29 U.S.C. § 216(b). Plaintiffs prevailed on all three motions.

While the transfer and conditional certification rulings will be helpful for plaintiff-side employment lawyers, it is the arbitration ruling that makes this opinion so important. Defendants had alleged that two of the plaintiffs had signed arbitration agreements in which they explicitly agreed to waive their right to participate in both class and collective actions. Judge Sweet agreed, finding that the fact that plaintiffs had acknowledged receipt of a handbook including an arbitration agreement containing the waiver, or had agreed to a modification adding the waiver, constituted assent to the agreement.

Judge Sweet then proceeded to consider plaintiffs' arguments opposing defendants' motion to compel. First, plaintiffs argued for a sweeping rule that collective action waivers are unenforceable because they prevent plaintiffs from vindicating their substantive statutory rights. As a fallback, they proposed a second, more narrow resolution, asking the court to find that enforcing the waiver in this case would have the practical effect of precluding plaintiffs from vindicating their rights under the FLSA because of the high costs required to pursue their claims on an individual basis.

Judge Sweet rejected plaintiffs' second, narrower argument. Although plaintiffs had submitted affidavits showing that the costs of pursuing individual arbitration and retaining experts would amount to over $100,000, Judge Sweet found that the plaintiffs' potential recoveries, ranging from $84,875 to $617,500, were large enough to provide an adequate incentive for plaintiffs to pursue their claims individually. Therefore, Judge Sweet had to address whether the waiver in question was unenforceable because FLSA collective action waivers are per se unenforceable, a question that was not reached by the one There Southern District case to invalidate an FLSA collective action waiver, Suthereland v. Ernst & Young LLP, 768 F. Supp. 2d 547 (S.D.N.Y. 2011).

In Suthereland, Judge Kimba Wood denied defendant's motion to compel arbitration in an FLSA collective action after finding that the expert costs that would be involved if the plaintiff were to pursue her individual claim, compared to her potential recovery, would effectively preclude her from seeking relief. In reaching this conclusion, Judge Wood cited In re American Express Merchants Litigation, 554 F.3d 300 (2d Cir. 2009) ("In re Amex I"), which the Supreme Court had vacated and remanded in light of Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010). In re Amex I had also found a class waiver to be unenforceable, upon a similar finding that expert costs would make pursuing plaintiffs' antitrust claims on an individual basis prohibitively expensive. Both Suthereland and In re Amex I relied upon a vindication of statutory rights analysis, a rule under the federal substantive law of arbitrability that holds that an arbitration agreement is unenforceable if it frustrates a plaintiff's ability to vindicate important statutory rights. On remand, the Second Circuit reaffirmed the viability of this doctrine and came to the same conclusion as its earlier In re Amex I opinion. See In re American Express Merchants Litigation, 634 F.3d 187 (2d Cir. 2011) ("In re Amex II").

Although Judge Sweet rejected the plaintiffs' second argument based on the facts of the case, he endorsed the first, much broader, argument: "[A] waiver of the right to proceed collectively under the FLSA is unenforceable as a matter of law . . . ." Following Suthereland, In re Amex I, and In re Amex II, he held that, under the federal substantive law of arbitrability, arbitration clauses that preclude plaintiffs from vindicating their statutory rights are unenforceable. He also cited Chen-Oster v. Goldman, Sachs & Co., No. 10 Civ. 6950, 2011 WL 2671813 (S.D.N.Y. July 7, 2011), agreeing with that case that Concepcion does not overrule Suthereland and In re Amex II, because those cases applied the federal substantive law of arbitrability, and not the kind of state law on unconscionability that Concepcion held was preempted by the FAA. He then reviewed the legislative history of the FLSA and concluded that the right to proceed as a collective action is an important, substantive feature of the FLSA. The upshot: because FLSA collective action waivers deprive plaintiffs of the right to proceed collectively, they are per se unenforceable.

Without such a broad rule, FLSA collective action plaintiffs hoping to defeat a motion to compel arbitration must jump through the hoops of showing that the costs of pursuing their claims individually would effectively prevent them from vindicating their rights. In fact, plaintiffs in There recent FLSA collective action cases have succumbed to defense motions to compel arbitration precisely because they could not show that individual litigation would be prohibitively expensive. See, e.g., D'Antuon v. Service Road Corp., 789 F.Supp.2d 308 (D. Conn. 2011) (granting defendants' motion to compel arbitration in FLSA collective action, where plaintiffs did not show they would incur prohibitively high costs if compelled to arbitrate); Pomposi v. GameStop, Inc., No. 09 Civ. 340, 2010 WL 147196 (D. Conn. Jan. 11, 2010) (same).

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