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April 08, 2020 Practice Points

Employees with Arbitration Agreements Not Entitled to Notice of Class Action

A win for employers seeking to enforce mutual arbitration agreements.

By Sherod Craig

In a win for employers seeking to enforce mutual arbitration agreements, the Seventh Circuit has joined the Fifth Circuit’s ruling blocking employees with valid arbitration agreements from receiving court-authorized notice of collective action claims. Bigger v. Facebook, Inc., No. 19-1944 (7th Cir. 2020).

On January 24, 2020, the U.S. Court of Appeals for the Seventh Circuit ruled on the issue of sending collective action notices to groups of employees who have an arbitration agreement with an employer. The Seventh Circuit held that a court “may not authorize notice to any employee whom the employer shows entered a valid arbitration agreement, unless the record reveals that nothing in the agreement would prohibit that employee from taking part in the action.”

The court weighed the interests protected by two federal statutes in determining who should receive notice of a collective action suit. On one hand, the Fair Labor Standards Act (FLSA) protects worker’s wages by providing a cause of action for an employee on behalf of themselves and other similarly situated employees. On the other hand, the Federal Arbitration Act (FAA) ensures that judges enforce arbitration agreements as written. The Seventh Circuit provided a framework for issuing notice when considering both federal authorities in the case.

In Bigger, Susie Bigger—a client solutions manager—brought a FLSA suit against Facebook. Bigger alleging that the media giant improperly classified its client solutions managers (CSMs). The classification prevented level 3 and 4 CSMs from receiving overtime pay. Because Bigger did not sign an arbitration agreement with a class or collective action waiver, she could bring an FLSA claim on behalf of herself and other CSMs. To counter, Facebook alleged that many of their CSMs had previously signed arbitration agreements preventing them from joining the class action. Nevertheless, the district court authorized notice for all individuals in the collective action suit. Facebook appealed the district court’s decision.

The Seventh Circuit shared similar concerns to those expressed in  Hoffmann-La Roche Inc. v. Sperling, 493 U.S. 165 (1989). In Hoffmann-La Roche Inc., the Supreme Court was concerned with (1) plaintiff’s potential to leverage collective actions for settlement advantage and (2) that authorizing notice to potential claimants could become indistinguishable from soliciting claims.

In deciding Bigger, the Seventh Circuit was concerned that additional plaintiffs could unfairly increase the pressure for an employer to settle. The court stated that trial courts should have the discretion to monitor the distribution of notice to potential claimants and establish who becomes an additional plaintiff in a lawsuit. The court also stated that court intervention in the notice process could give the appearance of endorsing the merits of a plaintiff’s action. Thus, the Seventh Circuit held that “the court may not authorize notice to any employee whom the employer shows entered a valid arbitration agreement, unless the record reveals that nothing in the agreement would prohibit that employee from taking part in the action.”

The Seventh Circuit further addressed when an offer of proof is required to establish the existence of a valid arbitration agreement. The court determined a showing is necessary when an employer alleges that potential recipients have valid arbitration agreements waiving their right to take part in the action and (1) no plaintiff contests the existence or validity of the alleged arbitration agreements or (2) after discovery on the alleged agreements’ existence and validity, the employer establishes—by a preponderance of the evidence—the existence of a valid arbitration agreement for each employee it seeks to exclude from receiving notice. Based on Facebook’s assertion that many of the potential recipients signed arbitration agreements and Bigger not contesting the legitimacy of Facebook’s claim, the Seventh Circuit vacated the trial court’s order issuing notice and remanded the case for the court to apply the proper standard.

The decision of the Seventh Circuit avoids a circuit split with the Fifth Circuit. In In re JPMorgan Chase & Co., No. 18-20825 (5th Cir.), notice was sent to 42,000 current and former workers in Chase Banks’ call centers. Yet, 85 percent of the workers had signed arbitration agreements. The Fifth Circuit ruled that workers who signed valid arbitration agreements should not receive court-authorized notice. The Fifth Circuit reasoned that the district court “should permit submission of additional evidence, carefully limited to the disputed facts, at the conditional-certification stage and deny notice be sent to such employee if the preponderance of evidence shows a valid arbitration agreement.”

The Bigger decision is a blow to plaintiff-employees filing FLSA collective actions in circumstances where many of their fellow employees have signed arbitration agreements. As of today, each of the two circuits to weigh in on the dispute has ruled that employees who signed arbitration agreements may not receive notice of the collective action.

Sherod Craig is a 2020 J.D. candidate at DePaul University College of Law in Chicago, Illinois.

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