On August 9, 2013, the Second Circuit ruled that an employee may be compelled to arbitrate individual claims under the Fair Labor Standards Act (“FLSA”) if the employee had executed a class action waiver,  even if it is “prohibitively expensive” for the employee to pursue her remedies via a mandatory arbitration process. Sutherland v. Ernst & Young LLP (2d Cir. August 9, 2013).

Case Summary

Plaintiff Stephanie Sutherland (“Sutherland”) sought to recover “overtime” wages for herself and others similarly situated. Sutherland was a salaried audit employee at Ernst & Young who claimed that she did not receive additional compensation over her salary for working “overtime.” She claimed that she regularly worked 45 to 50 hours each week, and sought overtime for all the hours she worked over 40 hours each week during her employment with Ernst & Young. Sutherland claimed that she was wrongfully classified as an exempt employee for FLSA overtime purposes.

Upon accepting employment with Ernst & Young, Sutherland signed both an offer letter and a confidentiality agreement by which she agreed to mediate or arbitrate any employment-related disputes under the terms of Ernst & Young’s established alternative dispute resolution (ADR) program, the Common Ground Dispute Resolution Program (widely known internally as “the Common Ground”).

The Second Circuit’s Decision

The Second Circuit commenced its analysis by referring to Supreme Court precedent that the Federal Arbitration Act (“FAA”) establishes “a liberal federal policy favoring arbitration agreements” and that arbitration agreements should be enforced according to their terms “unless the FAA’s mandate has been ‘overridden by a contrary congressional command.” The Second Circuit noted that Supreme Court precedent required it to reach the conclusion that “waiver of collective action claims is permissible in the FLSA context,” citing to the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion (2011) where the high court held that “[r]equiring the availability of classwide arbitration [would] interfere [  ] with fundamental attributes of arbitration and thus create [  ] a scheme inconsistent with the FAA.”

The Second Circuit also relied on the very recent Supreme Court case, American Express Co. v. Italian Colors Restaurant (2013), in which the Supreme Court admonished lower courts not to apply their own brand of the “effective vindication doctrine” and instead to “rigorously enforce arbitration agreements according to their terms.” Based on this guidance, the Second Circuit went on to hold that the FLSA does not contain a “contrary congressional command” that would negate Sutherland’s class action waiver. Moreover, the Second Circuit also held that the fact that the individual arbitration proceeding could be “prohibitively expensive” for Sutherland did not mean that she could not “effectively vindicate” her FLSA rights.

The Second Circuit stated that the FLSA did not “evinc[e] an intention [by Congress] to preclude a waiver of class action procedure.”  With this holding, the Second Circuit has aligned itself with all of the other circuits who have addressed this same issue.

At the District Court level, Sutherland had successfully opposed a motion to dismiss or stay the proceedings by Ernst & Young by arguing that the arbitration agreement was unenforceable because the requirement that she arbitrate prevented her from “effectively vindicating” her rights under the FLSA and the New York Labor Law. In dispatching with Sutherland’s “effective vindication” argument, the Second Circuit held that Sutherland’s class action waiver was “not rendered invalid by virtue of the fact that her claim [was] not economically worth pursuing individually.” Citing to Italian Colors, the Second Circuit stated that “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”

What Does The Decision Mean For Employers?

Make no doubt about it: the Sutherland decision is a major win for employers. Employers who insist on class action waivers can breathe a little easier now. The Sutherland decision allows employers to more easily enforce class action waiver provisions that are part of their offer letters and employment agreements, knowing that the provisions should apply to FLSA claims.