The Second Circuit recently ruled that the Fair Labor Standards Act (“FLSA”) does not prohibit the enforcement of class action waivers in arbitration agreements with employees, even if the waivers remove the financial incentive for individual employees to pursue claims. In doing so, the Second Circuit joined the Fourth, Fifth, and Eighth Circuits in allowing waiver of FLSA collective action claims.
In Sutherland v. Ernst & Young LLP, the plaintiff filed a class action for unpaid overtime wages, despite an arbitration agreement barring class or collective action arbitration. The defendant moved to compel arbitration. The plaintiff claimed that requiring individual arbitration would impermissibly prevent her from “effectively vindicating” her rights under the FLSA and New York state law. The plaintiff argued that the cost of pursuing an individual claim, estimated at approximately $200,000, would far exceed her potential recovery, which was less than $2,000.
The Second Circuit rejected the plaintiff’s contention that the FLSA creates a right to bring a collective action that cannot be waived. Rather, the court found that the FLSA does not contain a “contrary congressional command” that prevents the enforcement of a class action waiver provision in an arbitration agreement. Accordingly, the Second Circuit concluded that the waiver of collective action claims is permissible under the FLSA.
Sutherland represents a victory for employers in the fight over enforcement of class action waivers. It joins the growing body of cases upholding the use of class action waivers for various employment claims. For employers wishing to avoid class or collective actions, Sutherland makes it easier to enforce carefully crafted class action waivers according to their terms.