The U.S. Court of Appeals for the Seventh Circuit will hear oral argument Sept. 27 in a case that could create obstacles to the legal strategy of flooding companies with individual arbitration filings when they limit or block collective wage lawsuits with arbitration agreements.
The appeals court’s ruling would control the scope of notifying potential class members in Fair Labor Standards Act cases within the Seventh Circuit—which covers Illinois, Indiana, and Wisconsin. And it potentially could create a circuit split that would need the U.S. Supreme Court to resolve. The Fifth Circuit ruled earlier this year that workers who signed valid arbitration agreements shouldn’t receive notice, while putting the onus on the company to prove that any disputed agreements are binding.
Sending notice to workers who ultimately can’t join the collective would create delays, generate added costs, and boost plaintiffs’ settlement leverage, the U.S. Chamber of Commerce said in a brief backing Facebook. “Those are the precise harms that the arbitration agreements were designed to avoid,” the Chamber said.
But excluding workers who signed arbitration agreements would stop them from learning about potential FLSA violations and cut off their chance to ever pursue their claims, be that in court or in arbitration, the National Employment Law Project said in a brief supporting the plaintiff in the lawsuit, Susie Bigger.
The case centers on a conflict between the FLSA, a broadly interpreted law that protects workers’ wages, and the Federal Arbitration Act, a statute intended to ensure judges enforce arbitration agreements as written.
Congress built the FAA for arbitration contracts between two companies and never intended it to apply to workers’ collective actions, said Imre Szalai, a Loyola University New Orleans law professor who has written extensively about arbitration.
“They have two separate legal frameworks, the FAA and FLSA,” Szalai said. “They’re two separate universes never meant to collide. But now they are and courts have been struggling with that.”
Hit to Mass Arbitration Strategy?
The collision between laws passed more than 80 years ago could have a major impact on a cutting-edge legal tactic that has emerged in response to the growing prevalence of arbitration agreements with class and collective action waivers.
Some plaintiffs’ attorneys have filed waves of individual arbitration cases when their clients’ class claims have been kicked out of court and into arbitration. That can impose steep costs on employers that foot the bill for arbitration proceedings, thus increasing workers’ settlement leverage. In one high profile example, Uber Inc. said in May it will pay at least $146 million to a “large majority” of the more than 60,000 drivers who filed arbitration claims for employment misclassification.
Plaintiffs’ lawyers would likely have a more difficult time locating potential clients for mass arbitrations without the contact information obtained through the FLSA’s noticing process.
The two-step certification process allows for the conditional certification of a collective if the proposed members are similarly situated to the named plaintiff. That prompts the issuance of opt-in notices to the proposed members. Employers can move to decertify the collective later in the litigation.
Facebook’s Alleged Misclassification
The issue of giving notice to potential collective members emerges from Bigger’s 2017 lawsuit filed in Chicago federal court that accused Facebook of wrongly classifying its client solutions managers as ineligible for overtime pay. Bigger didn’t sign an arbitration agreement.
Facebook’s argument to exclude workers who signed arbitration agreements was premature, Leinenweber said. The conditional certification stage is too early for such a determination and no workers who signed the pacts are parties to the case, he said.
Regardless, Leinenweber said he didn’t have enough evidence to decide the validity of the arbitration contracts even if it wasn’t too early to make that decision.
Questions of Validity, Consent
Facebook argues that the judge should have made an upfront determination about which workers should be excluded from the noticing process because of their arbitration agreements.
“Allowing notice to go to each of the 336 arbitration employees misleadingly stating that they can opt in to the collective, only to prompt motions to compel arbitration of their claims, would undermine the efficiencies contemplated by the FLSA collective mechanism and the thoughtful case management function directed by Hoffmann-La Roche,” Facebook said in a brief to the Seventh Circuit.
Given that Bigger didn’t take advantage of the opportunity to challenge the validity of the agreements, they are “presumptively valid” under the FAA and the high court’s 2018 ruling in Epic Systems v. Lewis, which allowed class-action waivers in workers’ arbitration pacts, Facebook said.
But authorizing notice presents no conflict with the FAA, Bigger told the Seventh Circuit. Presuming the arbitration agreements are enforceable undercuts one of that law’s foundational principles, namely that that arbitration is consensual, she said in her brief.
Facebook has the burden to prove the agreements are valid, Bigger said. Instead the company wants the court to assume the enforceability of contracts signed by workers who aren’t even parties to the case yet, she said.
“Facebook has not demonstrated that any individual ‘waived’ the right to participate in this action, as it contends,” Bigger said. “Accordingly, the district court acted well within its case management discretion to authorize notice of the action to all CSMs who suffered from the same unlawful activity.”
The case is Bigger v. Facebook, 7th Cir., No. 19-1944, Oral argument 9/27/19.