In one of the most significant Fair Labor Standards Act (FLSA) appellate decisions in recent years, on February 21, 2019, a three-judge panel on the Fifth Circuit Court of Appeals unanimously held that “district courts may not send notice to an employee with a valid arbitration agreement unless the record shows that nothing in the agreement would prohibit that employee from participating in the collective action.” The Fifth Circuit’s decision in In re JPMorgan Chase & Co., No. 18-20825 (5th Cir.) represents the first U.S. Court of Appeals to address this important issue related to the issuance of notice in FLSA collective actions where a portion of the proposed collective is subject to an arbitration agreement.
Plaintiffs brought an FLSA collective action alleging “off-the-clock” work against JPMorgan Chase (“Chase”) in the Southern District of Texas. Plaintiffs moved to conditionally certify a putative collective of approximately 42,000 current and former call-center employees, and asked the court to mail notice of the pendency of the action to all putative collective members. Chase maintained that approximately 35,000 (or 85%) of the putative collective had entered into binding arbitration agreements that waived their right to proceed collectively, and therefore should not receive notice of the pending collective action. Plaintiffs did not dispute that at least some members of the collective had signed arbitration agreements that contained collective action waivers, but they maintained that those individuals should still receive notice of the action, and that if any individuals who were bound by the arbitration agreements sought to join the action, then Chase could move to compel them to arbitrate at that time.
The district court agreed with plaintiffs, and, in its decision conditionally certifying the action, ordered Chase to provide plaintiffs with contact information for all 42,000 employees (including those with arbitration agreements) and directed plaintiffs to send court-authorized notice of the lawsuit to all 42,000 individuals by email and First Class Mail. Chase moved for the district court to certify its order for interlocutory review and to stay its order, both of which the district court denied. Chase then filed a mandamus petition with the Fifth Circuit, which agreed to stay the district court’s order while it heard Chase’s petition.
The Fifth Circuit’s Decision
The unanimous Fifth Circuit panel denied issuance of a writ of mandamus on technical grounds, but nevertheless held as “binding precedent” that the district court “appeared to have erred by ordering notice be sent to employees who signed arbitration agreements (the 'Arbitration Employees') and by requiring Chase to provide personal contact information for the Arbitration Employees.”
In an issue of first impression before any U.S. Circuit Court of Appeals, the Fifth Circuit held that the U.S. Supreme Court’s decision in Hoffman-La Roche Inc. v. Sperling, 493 U.S. 165 (1989), “does not give district courts discretion to send or require notice of a pending FLSA collective action to employees who are unable to join the action because of binding arbitration agreements” and that “the district court erred in ordering that notice be given to them.” It concluded that “if there is a genuine dispute as to the existence or validity of an arbitration agreement, an employer that seeks to avoid a collective action, as to a particular employee, has the burden to show, by a preponderance of the evidence, the existence of a valid arbitration agreement for that employee.” Notably, although the Fifth Circuit referenced the class action waiver in the opening paragraph, its decision does not appear to turn on that issue, but rather just the existence of a valid arbitration agreement.
In what may be a case of wishful thinking, the Fifth Circuit assumed that “in the ordinary case, as here, the party or parties seeking the collective action would not raise a genuine issue as to the existence of an arbitration agreement, thus obviating the need for a preponderance determination as to that employee.” Where the existence of a valid arbitration agreement is disputed, the district court “should permit submission of additional evidence, carefully limited to the disputed facts, at the conditional-certification stage and deny notice be sent to such employee if the preponderance of evidence shows a valid arbitration agreement.” If the employer carries its burden, “it is error for a district court to order notice to be sent to that employee as part of any sort of certification.”
The Fifth Circuit specifically rejected plaintiffs’ argument that all collective members have a right to be given notice of any FLSA claims that they might have, even if they cannot join the current collective action. It noted that the Supreme Court in Hoffman-La Roche stated only that “district courts have the discretion to facilitate notice—not that they must,” and that plaintiffs’ “‘notice of rights’ theory looks a lot like ‘solicitation of claims,’ which Hoffman-La Roche forbids.” The Fifth Circuit reiterated that, under Hoffman-LaRoche, “notice is supposed to help facilitate the current lawsuit, not to affect individual arbitrations that might involve similar claims.” Moreover, although Chase had also argued that plaintiffs’ “notice of rights” theory was inconsistent with and undermined the Federal Arbitration Act because putative class members had agreed not to participate in collective actions, the Fifth Circuit’s rejection of the plaintiffs’ theory was solely based on its reading of Hoffman-La Roche.
The Fifth Circuit also rejected plaintiffs’ argument that the employer’s failure to move to compel arbitration did not doom its petition, because the courts cannot compel arbitration of individuals who have not yet been identified and have not joined the suit. The court did note that arbitration employees are not kept from attempting to opt-in to the collective action, but that the employer can then move to compel arbitration once they do.
Because the Fifth Circuit found that one of the requirements for a writ of mandamus was not satisfied, the Fifth Circuit continued its stay of the district court’s conditional certification order for 30 days to give the district court full opportunity to reconsider its order in light of the Fifth Circuit’s new precedent.
Both before and since the Supreme Court reaffirmed the use of class and collective action waivers in arbitration agreements in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), many wage and hour plaintiffs’ counsel have been using the FLSA collective action notice process to obtain contact information for individuals bound by arbitration agreements in order to bring mass arbitrations against employers that have implemented such agreements. The Fifth Circuit’s decision in JPMorgan Chase represents the first U.S. Court of Appeals to address this issue, but its holding is currently only law in the Fifth Circuit—which includes federal judicial districts in Louisiana, Mississippi and Texas—and it remains to be seen if courts in other circuits will follow the Fifth Circuit’s lead.
It is also unclear how the employer’s evidentiary burden outlined by the Fifth Circuit to demonstrate the existence of valid arbitration agreements will play out in practice, and that may be the main area of battle going forward on this issue in courts in the Fifth Circuit. Plaintiffs’ counsel will undoubtedly try to require defendants to provide as much information about individuals who possess such agreements, even perhaps trying to force defendants to reveal their names and contact information, even though such a requirement would appear to be counter to the principles underlying the court’s opinion.
However, the Fifth Circuit’s decision suggests that perhaps employers may be able to meet their evidentiary burden by submitting an affidavit setting forth details about the arbitration agreement and the number of individuals who are subject to it, or providing information like employee identification numbers, but short of revealing names and addresses. If courts were to allow defendants to meet their burden through the submission of affidavits of this sort, it would align this evidentiary burden with the lenient standard that plaintiffs have successfully advocated for with respect to first-stage conditional certification in FLSA collective actions. In that instance, many courts have allowed plaintiffs to meet the lenient standard through the submission of an affidavit by the named plaintiff, and have not evaluated or weighed contrary evidence submitted by defendant.
Given the proliferation of arbitration agreements and the frequency of courts issuing notice to putative collective members with arbitration agreements, it is likely that courts in other circuits will rule on this issue shortly as well, either on interlocutory appeals or petitions for writs of mandamus, and it is possible that this issue will ultimately be decided by the Supreme Court. In the meantime, it will important to watch how the district court on remand and other district courts in the Fifth Circuit address the evidentiary burden set forth in JPMorgan Chase and to see whether this decision impacts the number of mass arbitrations being brought by plaintiffs’ counsel.