Seyfarth Synopsis: After thirty-three former employees who signed release agreements requiring individual arbitration of ADEA claims collectively sued their employer for age discrimination, the employer moved to compel individual arbitration. The District Court denied the company’s motion. The U.S. Court of Appeals for the Eighth Circuit reversed because it found that the ADEA did not contain a “contrary congressional command” overriding the FAA’s mandate to enforce arbitration agreements.

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Case Background

In McLeod, et. al. v. General Mills, Inc., No. 15-3540, 2017 WL 1363797 (8th Cir. Apr. 14, 2017), thirty-three former employees of General Mills (the “Company”) were offered severance packages and signed release agreements in which they agreed to individually arbitrate claims relating to their termination—including, specifically, ADEA claims. Id. at *1. Despite agreeing to individual arbitration, the employees collectively sued the Company in the U.S. District Court for the District of Minnesota, alleging various ADEA violations. The Company moved to compel arbitration, and the District Court denied that motion. Id.

On appeal, the Eighth Circuit reversed the District Court’s denial of the Company’s motion to compel arbitration. The Eighth Circuit held that Section 626(f) of the ADEA does not contain a contrary congressional command to override the Federal Arbitration Act’s (“FAA”) mandate to enforce arbitration agreements. Id. at *2-3. At the core of this holding was the Eighth Circuit’s decision that the “right” to a jury trial and the “right” to proceed in a collective action, are not substantive ADEA rights. Id.

This decision is important because it addresses the fundamental question of whether employment agreements that require individual arbitration run afoul of the ADEA and its provisions authorizing plaintiffs to sue collectively.

Unlike other decisions involving the clash of arbitration agreements and 29 U.S.C. § 216(b), the Eighth Circuit’s decision in McLeod resolves the tension between, on the one hand the FAA’s mandate to enforce arbitration agreements, and on the other hand, the ADEA’s requirement in § 626(f) that a party must prove in a “court of competent jurisdiction” that the waiver of ADEA rights was “knowing and voluntary.”

Because the Eighth Circuit determined that the “waiver” of rights in Section 626(f) refers only to the waiver of substantive ADEA rights and because the “right” to a jury trial and the “right” to proceed in a collective action are not “rights” under § 626(f), it held that there was no “waiver” for purposes of § 626(f).

Case Background

In 2012, the Company terminated 850 of its employees. These employees were offered severance packages in exchange for signing release agreements. Id at *1. The release agreements required the employees to release the Company from all claims related to their termination, including claims under the ADEA. Id.

The release agreements also contained a dispute resolution provision that required the employees to submit any claim covered by the release agreement to arbitration on an individual basis. Id.

Thirty-three of the employees who were terminated in 2012 sued the Company in the U.S. District Court for the District of Minnesota. Specifically, the employees sought a declaratory judgment that the releases were not “knowing and voluntary,” as required by 29 U.S.C. § 626(f)(1). The employees also asserted collective and individual claims for alleged ADEA violations. Id.

The Company moved to compel arbitration of the employees’ claims, and the District Court denied that motion. Id. The Company subsequently appealed to the Eighth Circuit.

The Eighth Circuit’s Decision

On appeal, the employees argued that ADEA § 626(f) contains the necessary “contrary congressional command” to render their release agreements invalid. Id. at *2. Specifically, the employees relied on two related sections of the ADEA to argue that compelling arbitration results is an effective waiver of their substantive rights under the ADEA. Id. These two sections are § 626(f)(1) and § 626(f)(3).

Section 626(f)(1) of the ADEA prohibits the waiver of any ADEA right or claim — unless the waiver is “knowing and voluntary.” 29 U.S.C. § 626(f)(1). Whereas, § 626(f)(3) describes how to prove a “waiver,” requiring that the “the party asserting the validity of a waiver shall have the burden of proving in a court of competent jurisdiction that a waiver was knowing and voluntary . . . .” Id (citing 29 U.S.C. § 626(f)(3)). (emphasis added).

The employees argued that, by moving to compel arbitration of their claims, the Company was asserting the validity of a waiver — by forcing them to forego their “right” to a jury trial and their “right” to proceed by class action. Id.

The Eighth Circuit rejected this argument. “In § 626(f),” it explained, ‘“waiver’ refers narrowly to waiver of substantive ADEA rights or claims — not, as the former employees argued, the ‘right’ to a jury trial or the ‘right’ to proceed in a class action.” Id. (emphasis in original).

In reaching that decision, the Eighth Circuit cited 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009). In that case, the Supreme Court interpreted § 626(f)(1)’s references to “‘right[s] or claim[s]’ to mean substantive rights to be free from age discrimination, not procedural ‘rights’ to pursue age discrimination claims in court.” Id. Noting that Penn Plaza controls, the Eighth Circuit explained that the “specific ‘rights’ the former employees cite are not ‘rights’ under § 626(f)(1).” Id. The Eighth Circuit therefor decided that no “rights or claims” are “waived” by agreeing to bring claims in arbitration. Id.

The Eighth Circuit also rejected the employees’ argument that § 626(b), by incorporating 29 U.S.C. § 216(b), gives them a “right” to bring a collective action. Id. at 3. Before making short shrift of this argument, the Eighth Circuit noted that the ADEA borrows the procedural collective action mechanism from § 216(b) of the Fair Labor Standards Act (“FLSA”). Section 626(b) incorporates § 216(b), which allows an employee to sue on behalf of himself “and other employees similarly situated.” 29 U.S.C. § 216(b). Thus, the Eighth Circuit explained that § 626(b) expressly allows employees to bring collective actions for age discrimination. McLeod, 2017 WL 1363797 at *3.

Although the Eighth Circuit acknowledged that the ADEA expressly authorizes employees to sue collectively, it held that § 626(b) does not create a non-waivable, substantive right to do so. Citing its decision in Owen v. Bristol Care, Inc., 702 F.3d 1050, 1052 (8th Cir. 2013), the Eighth Circuit first explained that “[s]tanding alone, § 216(b) does not create a non-waivable substantive right; rather, its class-action authorization can be waived by a valid arbitration agreement.” Id. The Eighth Circuit then found no convincing reason why § 626(b)’s incorporation of § 216(b) would “elevate the procedural class-action authorization to a substantive § 626(f)(1) ‘right.’” Id.

Ultimately, the Eighth Circuit concluded that the ADEA does not provide a “contrary congressional command” overriding the FAA’s mandate to enforce agreements to arbitrate ADEA claims, and that the District Court should have granted the Company’s motion to compel arbitration. Id.

Next, the employees argued that an arbitration panel could not grant them their declaratory relief — i.e., decide the question of whether their waiver of substantive ADEA rights was “knowing and voluntary.” Id. at 4. Specifically, the employees argued that this question can only be resolved in court because of § 626(f)(1)’s mandatory language “shall have the burden of proving in a court of competent jurisdiction.” Id. (emphasis added).

The Eighth Circuit declined to decide this issue, finding, instead, that the question was not justiciable. Id. Because the Company had not yet asserted that any of the employees had in fact waived their ADEA claims, and because the employees were seeking declaratory relief only “if and to the extent” the Company asserted that defense, the Eighth Circuit concluded that the employees’ declaratory relief was hypothetical. Id. “No Article III case or controversy arises,” it explained, “when plaintiffs seek a ‘declaratory judgment as to the validity of a defense’ that a defendant ‘may or may not, raise.’” Id. Accordingly, the Eighth Circuit held that the District Court did not have jurisdiction to decide whether the employees’ waiver was “knowing and voluntary.” Id.

Implication For Employers

This decision is important for employers, but less so for the reasons one might imagine. The reality is that this decision does little to alter the ADEA judicial landscape. More than two decades ago the Supreme Court held in Gilmer v. Interstate/Johnson Lane Corp. that ADEA claims could be subjected to compulsory, individual arbitration, even though collective actions are permitted under the ADEA by the identical statutory language as the FLSA. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991). While Gilmer did not specifically touch on the interplay between § 626(f) and the FAA, it is a bit surprising that a discussion of Gilmer is altogether absent from the Eighth Circuit’s decision.

One take away is that employers can remain confident that provisions requiring individual arbitration of ADEA claims will not result in a prohibited waiver of an employees’ rights under the ADEA.

This decision also sheds light on an important strategy consideration. Employers that assert waiver as a defense may find themselves litigating the validity of that waiver (i.e., whether the waiver was knowing and voluntary) in court — even though the employees agreed to arbitrate their claims. Hence, employers will likely need to weigh the advantages and disadvantages of defending an ADEA violation on the merits in arbitration versus adopting a waiver defense in court.