Mandatory arbitration agreements containing waivers of various statutory rights are being used with increasing frequency.

The utilization of these tools have been encouraged by the U.S. Supreme Court, which has endorsed arbitration waivers on multiple occasions, including Circuit City Stores, Inc. v. Adams, a 5-4 decision upholding arbitration agreements in employment and AT&T Mobility v. Concepcion, another 5-4 decision upholding arbitration clause in a consumer contract in consumer retail transaction.

These narrowly decided decisions form the basis for a recent ruling of the 8th Circuit Court of Appeals upholding an arbitration clause waiving class action claims for an overtime compensation case. Unlike the narrowly divided Supreme Court rulings, the 8th Circuit panel was unanimous in its determination, which was handed down while other important arbitration-waiver cases are pending before the high court.

FLSA fracas

A procedural fracas over overtime compensation under the Fair Labor Standards Act was resolved unfavorably for the claimant at an early procedural stage in by the 8th Circuit in Owen v. Bristol Care, Inc. The case was brought by an administrator at a residential health care facility for the elderly. The administrator claimed that she and other similarly situated administrators were misclassified as “exempt” employees for purposes of state and federal overtime laws, including the FLSA. Claiming that she and her colleagues worked more than 40 hours per week without the requisite 1 1/2 times overtime pay, she brought a class action against the employer.

Relying upon a mandatory arbitration agreement signed by the employee when she began work, which covered all full claims for wages or other compensation, including those arising under the FLSA, along with a waiver of arbitration of class-action claims, the District Court denied a motion by the employer to compel arbitration on grounds that the class-action waiver invalidated the agreements. The trial court’s rationale, based upon a decision of the National Labor Relations Board and a federal court case from New York, was that class waivers are invalid in overtime pay because the FLSA provides for the right to bring a class action.

But the 8th Circuit reversed, holding that the employer was entitled to arbitration and enforcing the class-action waiver. Reviewing the matter de novo, the 8th Circuit disagreed with the trial court’s reasoning that distinguished the AT&T case on grounds that it involved a class waiver and consumer contract, which was not applicable to employment cases.

The Uniform Arbitration Act “requires courts to enforce arbitration agreements according to their terms.” There is “nothing in either the text or legislative history of the FLSA” reflecting a Congressional intent to prohibit employees from agreeing to “arbitrate FLSA claims individually,” nor is there a conflict between the requirement for arbitration under the uniform act and the provisions of the FLSA.

The provision in the FLSA, 29 U.S.C. sec. 216(b) allowing a class action does not deprive an employee of the “power to waive participation in a class action,” nor is there any “inherent conflict” between the FLSA and the Arbitration Act. The arbitration agreement in this case does not preclude the employee from filing a charge with an administrative agency such as the Department of Labor, which has jurisdiction over FLSA claims, or the Equal Employment Commission for discrimination, or the NLRB, or “any other administrative body.” Any of these agencies can investigate and, if appropriate, file suit on behalf of a class of employees.

The conclusion that the class-action waiver is enforceable in the arbitration agreement is “consistent with all of the other courts of appeals that have considered this issue,” and it was determined that arbitration agreements containing class waivers are “enforceable in FSLA cases,” as decided by the 3rd, 4th, 5th, 9th and 11th circuits. Therefore, the invitation by the class claimants to follow the NLRB rationale was rejected, and the class action waiver deemed enforceable.

Accordingly, the case was remanded to the District Court to enter an order granting the employer’s motion to stay the litigation and compel arbitration without any class-action proceedings.

Owen opportunity

The Owen ruling of the 8th Circuit came at a time when the U.S. Supreme Court is taking the opportunity to “exempt” two major class action cases involving arbitration issues.

The high court this term will pass upon whether the Federal Arbitration Act permits courts to invalidate arbitration agreements that do not allow class arbitration of a federal law class in American Express Co. v. Italian Colors Restaurant. The 2nd Circuit reversed a lower court ruling and held the class action waiver was not enforceable because it would preclude any “feasible means of recovery” for the individual claim members.

The justices also will decide this year whether a clause in an agreement provides that “any dispute” submitted to arbitration authorizes class-action treatment in arbitration. In Oxford Health Plan LLC v. Sutter, the 3rd Circuit upheld an arbitration decision to proceed with class arbitration. That ruling creates tension with the Supreme Court’s decision in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., which held that class-action arbitration cannot be allowed in the absence of specific authorization language in an argument. But the argument in Stolt-Nielsen was silent on this issue compared to the “any dispute” language in Oxford Health.

Jurisprudence has tilted in favor of allowing arbitration agreements coupled with class-action waivers. The recent 8th Circuit ruling in Owen continues that trend, while litigants and their lawyers await rulings on the pending Supreme Court cases dealing with this topic.

Originally published in the April 22, 2013 edition of Minnesota Lawyer.