On March 21, 2013, the Second Circuit issued its long-awaited decision in Parisi v. Goldman, Sachs & Co., No. 11-5229 (2d Cir. Mar. 21, 2013). In a significant ruling for employers, the Second Circuit held that a plaintiff has no substantive right to pursue a pattern or practice claim via a class action and, therefore, must arbitrate her discrimination claims on a bilateral basis in accord with her arbitration agreement. 

We previously have discussed the uncertain fate of arbitration agreements that prohibit class claims in prior posts (read more here, here, and here). Other cases addressing this issue continue to work their way through the Second Circuit and the Supreme Court. 

The outcome of these cases has important implications. If other courts align with Parisi, employers may be able to limit employees’ ability to pursue certain types of high-stakes class or collective actions through well-crafted arbitration agreements. 

Factual Background

Lisa Parisi and two other female employees brought a class action against Goldman Sachs alleging that the company engaged in a pattern and practice of discrimination against female employees with respect to compensation, business allocations, promotions, and other terms and conditions of employment in violation of Title VII. Id. at 2.

Parisi signed an arbitration clause agreeing that “any dispute, controversy or claim” arising out of, based upon, or relating to her employment with Goldman Sachs would be “finally settled by arbitration.” Id. 

In November 2010, Goldman Sachs moved to enforce Parisi’s arbitration agreement and compel bilateral arbitration of her claims. The company relied upon the Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), that a party cannot be compelled to arbitrate on a class basis where the relevant arbitration clause is silent as to class claims. Id. at 3.

The district court denied the motion. It adopted the magistrate’s conclusion that the arbitration agreement’s preclusion of class arbitration made it impossible for Parisi to arbitrate a Title VII pattern or practice claim and, consequently, operated as a waiver of a substantive right. Id. Goldman Sachs appealed.

The Second Circuit’s Opinion

On appeal, Parisi argued that she had a substantive right under Title VII to pursue a pattern or practice claim and, because she could not proceed on a class-wide basis in arbitration, she must be permitted to proceed in court via a class action. The Second Circuit disagreed. 

The Second Circuit acknowledged that, by agreeing to arbitrate a statutory claim, a party does not forgo substantive rights afforded by statute. Id. at 5. However, it found only two case precedents where arbitration prevented plaintiffs from vindicating statutory rights: a complex antitrust case (read more here) and cases where arbitration agreements interfered with recovery of statutorily authorized damages. Id.

The Second Circuit found that Parisi had no “right” to bring a pattern or practice claim under Title VII.  Id. at 6. The term “pattern or practice” simply refers to “a method of proof.” Id. at 7.  Because private plaintiffs do not have the right to bring pattern or practice claims, the Second Circuit reasoned that “there can be no entitlement to the ancillary class action procedural mechanism.” Id.

Parisi, accordingly, will have to offer to the arbitrators evidence of discriminatory patterns, practices or policies, if any, that she contends support her claim. Id. at 8. 

Implications For Employers

The Second Circuit’s decision is favorable news for employers. The impact of the decision, however, remains unclear, as additional cases work their way through the Second Circuit and the Supreme Court. The Supreme Court is currently considering the Second Circuit’s earlier decision in In Re American Express Merchants’ Litigation, 667 F. 3d 204 (2d Cir. 2012), where the Second Circuit found that an arbitration agreement containing a class action waiver prevented an antitrust plaintiff from effectively vindicating his rights.  And, the Second Circuit is still considering cases like Raniere v. Citigroup, Inc., 827 F. Supp. 2d 294, 311-14 (S.D.N.Y. 2011), and Sutherland v. Ernst & Young, LLP, 768 F. Supp. 2d 547, 550-54 (S.D.N.Y. 2011), where district courts refused to compel arbitration of overtime collective action claims under the FLSA. The future of class action waivers in arbitration, accordingly, is still uncertain. Stay tuned.