United States: Mandatory Arbitration, Class Waivers, And The Future Of Wage-Hour Litigation: 6th Circuit Shows One Reason Why High Court Rejection Of D.R. Horton Theory Would Not Kill Collective Actions

Employers have faced questions about the enforceability of arbitration agreements with class and collective action waivers since the NLRB's highly controversial D.R. Horton decision in 2012, which held that the waivers violate employees' right to engage in protected concerted activity. The Fifth Circuit refused to enforce the decision, and other courts followed, but the NLRB refused to change course. In 2016, the Seventh and Ninth Circuits also adopted the NLRB's view, as has the Sixth Circuit in 2017.

In January 2017, the U.S. Supreme Court agreed to hear the issue, consolidating cases from the Fifth, Seventh, and Ninth Circuits. Oral argument is scheduled to take place during its Fall 2017 term.

The tea leaves at the Supreme Court give many reason to believe that the NLRB's position will be struck down. Newly-appointed Justice Neal Gorsuch is considered by many observers to be likely to follow the pro-arbitration stance of his predecessor, Justice Scalia. The Office of the Solicitor General recently reversed its position, filing an amicus brief in support of the employers that details the flaws it sees in the NLRB's position and leaving the NLRB on its own to argue the case before the Court. And the appointment of new Board members and the end of the NLRB General Counsel Richard Griffin's term in November 2017 raise the possibility the agency may revisit its position, thus eliminating any argument that courts should defer to the NLRB's current position on the legality of class waivers.

Some, from both sides of the bar, speculate that if the Supreme Court rejects the D.R. Horton theory nearly all well-advised employers seeking to minimize their risks will adopt mandatory arbitration programs with class waivers, and that wage-hour litigation as we know it will be over. That hope/fear, however, may be overstated.

This post is the first of several that will consider what the future may hold if employers find themselves confident that they will be able to issue enforceable, mandatory arbitration programs containing class and collective waivers. To what extent will the wage-hour class and collective action landscape change?

A recent Sixth Circuit decision, Taylor v. Pilot Corporation, et al., provides a glimpse into one part of the future. The employer had in place an arbitration agreement with a collective action waiver that applied to most, but not all, of its 50,000 hourly employees. One of the employees who was not bound by the agreement filed an FLSA collective action alleging that she had not been paid for all of her overtime hours. She asked the court to authorize sending notice of conditional certification to those "similarly situated" to her, which she contended included all 50,000 hourly employees.

The employer protested that the plaintiff was not similarly situated to the tens of thousands of employees bound by the arbitration agreement. After all, even if those employees opted in to the suit, the court would lack subject matter jurisdiction, and their claims would be dismissed and sent to arbitration. The district court disagreed, reasoning that it would determine whether the arbitration agreements were enforceable only after learning who had opted-in to the litigation. Notice to all 50,000 hourly employees was approved. The decision was affirmed on appeal, with the Sixth Circuit concluding it did not have jurisdiction to consider questions about the enforceability of the arbitration agreement at this stage.

The decision illustrates how even carefully prepared arbitration agreements can have unintended consequences if not carefully rolled out. Suppose that notice to 50,000 employees results in just 1,000 opt-in plaintiffs, and all of them have signed enforceable arbitration agreements with a collective action waiver. While those employees ultimately may not be able to participate in the collective action for which they received notice, they nonetheless have now been in touch with a lawyer or group of lawyers who can file individual arbitration demands on behalf of all 1,000 employees who had filed consents to join the lawsuit for which they received a collective action notice after conditional certification.

And it gets worse. Consider that most third-party arbitration services require that the employer pay an initial fee when the employee's claim is filed. The American Arbitration Association, for example, imposes a non-refundable fee of at least $1,500 on the employer for cases filed by an employee. Continuing with the example from above, the employer could be hit with $1,500,000 in costs just as the price to play. Costs begin to rise exponentially when it comes time to mount a defense and arbitrator and hearing fees begin.

In other words, employers should not expect that a Supreme Court endorsement of arbitration agreements with class and collective action waivers will act as a complete bar to collective claims. After all, to adopt a famous movie phrase, plaintiffs' lawyers "find a way." The Taylor decision shows the potential power of finding the "unicorn" plaintiff who is not bound by the same agreement as her co-workers, and shows that employers will have to ensure that each and every one of their employees will have to be bound by an arbitration program to maximize a class waiver's protection. But even then, the unicorn for a plaintiff's lawyer may merely be someone who had been employed by the defendant-employer within the last three years (the longest of the FLSA's potential limitations periods), but whose employment had ended before the arbitration program had been enacted. Other novel workarounds are sure to arise if new rules about arbitration force plaintiffs to get more creative.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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