MCB Employment Update: Second Circuit to Review Class Action Waivers in Employee Arbitration Agreements

by | May 3, 2016 | Labor & Employment | 0 comments

In March 2015, the U.S. District Court for the Southern District of New York granted Raymours’ motion to compel arbitration in Patterson v. Raymours Furniture Company, Inc., finding the company’s “Employment Arbitration Program” (“EAP”), which included individual employee arbitration agreements and class and collective action waivers, to be valid and enforceable.  The district court’s decision is now pending appeal before the Second Circuit where both the U.S. Chamber of Commerce (“Chamber”) and the National Labor Relations Board (“NLRB”) have filed amicus briefs in support of Raymours and plaintiffs, respectively.

Although the Second Circuit has yet to rule, recent court decisions enforcing class or collective action waivers included in arbitration agreements indicate that employers may benefit by implementing similar employee arbitration requirements to insulate against potential class or collective action employment disputes.  If the Second Circuit affirms the district court’s decision to validate and enforce Raymours’ EAP, employers may soon be able to avoid class or collective action employment disputes.

The July 2014 suit alleged that Raymours’ policies and practices violated various provisions of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”) by unlawfully depriving sales associates of wages, including overtime wages and full commission earnings.  In response, Raymours filed a motion to compel arbitration pursuant to its EAP contained in the handbook.  The EAP provides, in part, that claims “cannot be litigated by way of class or collective action.  All claims between [the employee] and [Raymours] must be decided individually.”  Plaintiffs argued, in part, that there was no agreement to arbitrate and that the EAP’s class or collective action waiver was unenforceable because it violated the National Labor Relations Act (“NLRA”).

U.S. District Judge Valerie Caproni rejected plaintiffs’ arguments finding, in part, that the parties agreed to arbitrate and the Federal Arbitration Act (“FAA”) mandated arbitration of the claims, and the EAP’s class or collective action waiver was enforceable and did not violate the NLRA.  In concluding that “all [asserted] claims are arbitrable,” Judge Caproni further noted that, in accordance with the Second Circuit and other recent court decisions, the NLRA “does not stand in the way of the FAA’s command to enforce arbitration agreements ‘according to their terms.’”

The NLRB filed an amicus brief in support of plaintiffs and advocated its theory that class or collective action waivers in arbitration agreements are unenforceable and violate the NLRA.  Following the NLRB’s amicus brief, the Chamber of Commerce (“Chamber”) filed its own amicus brief in support of Raymours and requested that the Second Circuit uphold the district court’s ruling “that Plaintiffs’ agreements to arbitrate disputes with their employer on an individual basis are valid and enforceable.  . . . [and] the FAA requires that such agreements be enforced according to their terms.”  The Chamber further notes that “the NLRB effectively ‘stands alone in holding that the NLRA overrides the FAA[,]’” reasoning that “[a]rbitration is faster, easier, and less expensive than litigation[,]” benefitting everyone – especially employees – who are more likely to have “individualized claims that would necessarily go unredressed if a civil action in court were their only recourse.”  Finally, the Chamber notes that reversing the district court would “frustrate the will of Congress and eliminate all the benefits that arbitration offers.”

The current epidemic of employment-related class and collective actions has created costly financial liability for some employers.  The mere existence of a class or collective action remedy creates hydraulic pressure on employers to settle these class/collective actions — regardless of their merits.  If the Second Circuit affirms Judge Caproni’s decision, it will confirm arbitration agreements as a potentially effective tool for employers to reduce litigation costs.

This article highlights recent developments in Patterson v. Raymours Furniture Company, Inc. and is not intended to be legal advice.