United States: Seventh Circuit Now Addresses When Notices Of Collective Action Can Be Given To Employees Who May Have Arbitration Agreements Waiving Their Right To Join

Whether to give notices of a collective action under the Fair Labor Standards Act (FLSA) to employees who may join presents some nuanced and challenging questions for district courts. The court must "respect judicial neutrality and avoid even the appearance of endorsing the action's merits." See Hoffmann-LaRoche Inc. v. Sperling, 493 U.S. 165, 171-174 (1989). Merely sending the notice can increase the settlement pressure on an employer regardless of the merits of the underlying claim. And, "[a] related danger is that notice giving . . . may become indistinguishable from solicitation of claims." Id. Numbers do have a monetary impact. The notice decision becomes even more complex when some of the employees may have entered into arbitration agreements waiving their rights to proceed in an aggregate manner.

What does an employer have to show to establish an enforceable agreement and avoid the notice? In Bigger v. Facebook, Inc., (No. 19-1944) (decided Jan. 24, 2020), Judge Michael S. Kanne, writing for a Seventh Circuit panel, grappled with these impactful issues in a case of first impression.

The Background.

Susie Bigger sued Facebook for violating the FLSA overtime pay requirements in a collective action where members must opt in to the action to be bound. Bigger sought notices of the action and to opt in for all Client Solution Managers (CSMs), the position she held, at any U.S. location. The district court found that notices of the action should be sent to all those Bigger proposed over Facebook's objections and in the face of a summary judgment motion. Facebook estimated that between one half and 78% of the CSMs like Bigger or approximately 336 individuals had entered into arbitration agreements. See Slip Op. at 5 n. 3.

The Analysis.

The Seventh Circuit panel held that a court may authorize notice to potential plaintiffs unless (1) no plaintiff disputes "the existence or validity" of the claimed arbitration agreement or (2) the defendant, after discovery regarding the agreements, "establishes by a preponderance of the evidence" that a valid arbitration agreement exists "for each employee" to be excluded from the litigation notice. Slip Op. at 2-3. We blogged about the district court proceeding in Bigger on April 10, 2019. The Seventh Circuit distinguished the Fifth Circuit decision In re JPMorgan Chase & Company, 916 F. 3d 494 (5th Cir. 2019), because the plaintiffs there did not contest the coverage or validity of the arbitration agreements. See Slip Op. at 11 n. 7. We blogged about the JPMorgan Chase & Co. decision on Feb. 25, 2019.

While the court required individual scrutiny of each employee's arbitration agreement and its "validity," it did not believe that approach ran afoul of the federal policy of "favoring arbitration agreements,", citing Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983). Indeed, courts generally must determine whether a valid arbitration agreement exists or covers a particular controversy. See Slip Op. at 10.

Given its newly established mode of analysis, the Seventh Circuit vacated the order and remanded the notice issue to the district court for the parties to provide additional evidence. Finally, the court denied Facebook's motion for summary judgment finding that the record did not provide "a clear picture of Bigger's duties and how they relate to Facebook's and its customers' enterprises." Slip Op. at 17.

The Impact.

While some companies may have arbitration agreements electronically executed or stored, the panel decision still presents substantial challenges for employers. The receipt of any employee's contract information is a valuable asset for plaintiffs' counsel regardless of the enforceability of any arbitration agreement. Nationwide data is more potentially valuable.

So, if there is any basis to contest the application of an arbitration agreement, the resulting employee information is a benefit to plaintiffs' counsel, regardless of outcome, whether for settlement purposes or to populate a mass arbitration to overcome valid class or collective action waivers that may be applicable. The Fifth Circuit understood this potential impact in JPMorgan Chase & Co. when it declared ". . . alerting those who cannot ultimately participate in the collective 'merely stirs up litigation,'" citing Hoffmann-LaRoche, 493 U.S. at 174. More appellate decisions are expected given the practical impact of the notices, and it may be that the Seventh Circuit will be asked to reconsider this decision or that the employer will seek Supreme Court review.

Bottom Line:

The Seventh Circuit has now established an analytical framework for FLSA notices when employees contest the existence of a valid arbitration agreement, but it remains to be seen whether other courts will follow it or how it will function as a practical matter.

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