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Arbitration Agreements and Class Action Litigation

It has now become almost axiomatic that any given alleged violation of the Fair Labor Standards Act – calculation of the overtime rate, rounding procedures, travel time, exempt status, etc., can, and most certainly will, become the basis for a class action lawsuit, since a violation toward the one generally involves a violation toward the many (surely there is a Latin phrase for this).

In response to such actions, and litigation in general, it is also becoming increasingly common for employers to require employees to enter into arbitration agreements as a condition of employment, under which employees agree to resolve alleged violations of employment law through arbitration and not in the courts – including claims of alleged “class” violations. Not surprisingly, such agreements themselves have, in turn, also become the source of litigation – and multiple decisions from the US Supreme Court, most recently in Lamps Plus, Inc. v. Frank Varela, Case No. 17-988 (April 24, 2019).

In 2018, the Supreme Court upheld the validity of arbitration agreements as they applied to an employee’s right to join a class or collective action. Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018). The Court held that an employee who signs a contract providing for individualized arbitration of employment disputes waives his/her right to participate in a class action litigation of those disputes, including collective actions under the FLSA. But what if the agreement is ambiguous as to the underlying nature of the arbitration proceeding agreed upon? Is it to be an individualized proceeding, applying only to each individual employee, or a “class arbitration,” under which the claims of all employees are to be resolved in a single proceeding?

In Lamps Plus, the Court found that when an arbitration agreement is ambiguous on the issue of class arbitration, it cannot be compelled. The Court relied on a previous decision, Stolt-Nelson v. Animal Feeds Int’l, 559 US 662 (2010), which held that a court cannot compel classwide arbitration of a dispute if the agreement is silent on the availability of such arbitration, since class arbitration fundamentally changes the “traditionally individualized” nature of arbitration envisioned by the Federal Arbitration Act. The Lamps Plus Court found that the same reasoning applies to ambiguous arbitration agreements. In other words, unless the parties have specifically agreed to resolve disputes through class arbitration, not individually, arbitration on a class basis cannot be compelled by the court.

What does this mean? First, with the continued increase in class action litigation, employers may want to seriously consider entering into arbitration agreements with employees, especially with respect to wage claims under the Fair Labor Standards Act. Second, any such agreements must be carefully written, especially with respect to the nature of the arbitration being agreed upon (i.e., individualized).

If you would like more information, or have questions about arbitration agreements, class action litigation or collective actions under the FLSA, contact Attorney Alan E. Seneczko at (262) 560-9696, or alseneczko@wesselssherman.com.

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