Much like a war where each side steadily amasses victories and defeats, the federal courts and the National Labor Relations Board (NLRB) continue to have diverging opinions on the enforceability of class action waivers in arbitration agreements.
Federal courts have won the most recent battle in the war. In Owen v. Bristol Care, Inc., No. 12-1719, 2013 WL 57874 (8th Cir. Jan. 7, 2013), the Eighth Circuit held that class action waivers are enforceable in Fair Labor Standards Act (FLSA) cases, and became the first court of appeals to explicitly reject the National Labor Relations Board’s (NLRB’s) stance against class waivers in the employment context as established in In re D. R. Horton, Inc., 357 NLRB No. 184,2012 WL 36274 (N.L.R.B. Jan 03, 2012), appeal pending, No. 120600031 (5th Cir. Jan. 13, 2012) (oral argument is scheduled for February 5, 2013), which held that class action waivers violated employees’ rights to engage in protected concerted activity under Sections 7 and 8(a)(1) of the National Labor Relations Act (NLRA).
The Owen Decision
In 2009, Bristol Care, Inc. hired Sharon Owen as a nursing home administrator. Both parties signed a Mandatory Arbitration Agreement in which they agreed to resolve all claims or controversies, including claims arising from the FLSA, by binding arbitration. The agreement also contained a class action waiver prohibiting parties “from arbitrating claims subject to [the] Agreement as, or on behalf of, a class.” The agreement, however, did not waive the right to file a complaint with a federal, state or local agency designed to investigate statutory violations or similar claims.
In September 2011, Owen initiated an action against Bristol Care, alleging that her employer intentionally misclassified her and other similarly situated individuals as exempt employees in order to avoid paying proper overtime compensation under the FLSA. In response, Bristol Care moved to stay district court proceedings and compel arbitration in accordance with the agreement and the Federal Arbitration Act (FAA).
The District Court in Owen v. Bristol Care, Inc., NO.11-04258-CV-FJG, 2012 WL 1192005 (W.D. Mo. Feb 28, 2012), denied the motion to compel arbitration, holding that class action waivers are invalid in FLSA cases because the FLSA provides for the right to bring a collective action. In reaching this conclusion, the Court distinguished the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which upheld the enforceability of a class action waiver in a consumer contract, stating that the holding was not controlling in an employment context. Instead, the District Court relied on the NLRB’s decision in D.R. Horton and the Southern District of New York’s decision in Chen-Oster v. Goldman, Sachs & Co., 785 F. Supp. 2d 394, 398-408 (S.D.N.Y. 2011), stating that “[i]n the employment context, waivers of class arbitration are not permissible.”
On appeal, the Eighth Circuit Court of Appeals reversed the District Court’s ruling and held that mandatory arbitration agreements containing class action waivers are valid and enforceable in cases arising under the FLSA. The appeals court stated several reasons for their reversal including:
- The Supreme Court’s decision in Concepcion applies to employment as well as consumer cases.
- Nothing in the text or legislative history of the FLSA indicates a congressional intent to bar employers and employees from agreeing to arbitrate FLSA claims.
- The FAA created a strong public policy in favor of arbitration and nothing in the FLSA overrides this.
- Unlike the agreement in D.R. Horton, the agreement did not bar all concerted action—under the agreement employees had the right to file a complaint with administrative bodies such as the U.S. Department of Labor or Equal Employment Opportunity Commission.
- The Court declined to defer to the NLRB’s interpretation of Supreme Court precedent and stated that the NLRB did not have special competence or experience in interpreting the FAA.
- The conclusion that class action waivers are enforceable is consistent with two decades of Supreme Court precedent and the majority of federal courts that have ruled on this issue.
Federal Courts: Class Action Waivers in Arbitration Agreements Are Enforceable
The Eighth Circuit has many allies that oppose the NLRB’s holding in D.R. Horton. The general trend among federal courts at all levels is that class action waivers...
