TBJ MAY 2022
Enforceability of collective action waivers when parties do not arbitrate.
Written by Ben Allen and Dreu Dixson
A current or former employee with a wage and hour dispute claim under the federal Fair Labor Standards Act, or FLSA, has powerful statutory remedies. Perhaps the most threatening to employers, however, is a single plaintiff’s ability to seek collective action certification,1 and if certified, send notice of the case with opt-in2 instructions to each potential plaintiff who might have the same type of claim.
To mitigate against the risk that one disgruntled employee might become a class of hundreds, drafters of employment agreements typically include arbitration clauses, class action waivers, collective action waivers, or a combination of all three. Not surprisingly, along with the arbitration clauses themselves, class and collective action waivers are heavily contested battlegrounds in virtually every case where they are invoked.
In 2018, the U.S. Supreme Court decided Epic Systems v. Lewis and held that collective action waivers contained in arbitration clauses are enforceable, do not violate the National Labor Relations Act, or NLRA, and are not otherwise illegal under federal law.3
But what happens when an employer-defendant does not want to
arbitrate due to negative prior experiences with a particular
association, rising arbitration expenses,4 or just the desire
for stronger appellate remedies? Can a defendant waive arbitration but
still prevent an FLSA plaintiff from seeking collective action or class
certification? Quite possibly, but it depends on how the clauses
themselves are drafted.
IS THE DEFENDANT SEEKING TO ENFORCE A CLASS ACTION WAIVER
RATHER THAN A COLLECTIVE ACTION WAIVER?
If the defendant is relying on a class action waiver to defeat collective action certification, they will have a tough road, because class action waivers will generally be insufficient to prevent collective action certification in FLSA actions. In International Bancshares v. Lopez, the agreement, by its own terms, “explicitly barred only class actions, not collective actions.”5 The court therefore upheld an arbitrator’s “clause construction award” allowing the arbitration to proceed on a collective basis, emphasizing that the American Arbitration Association rules incorporated into the agreement distinguish between class and collective actions.6 The court went on to explain that “the arbitrator determined that the Agreement, which explicitly covered ‘[c]laims regarding wages or other compensation due under the Fair Labor Standards Act’ but required consent for ‘class actions’ did not require consent for collective actions under the FLSA.”7 In doing so, the court distinguished Stolt-Nielsen v. Animal Fields, a Supreme Court opinion holding that arbitration clauses cannot implicitly authorize class action arbitrations, emphasized the opt-in consent nature of collective actions, and upheld the arbitrator’s construction of the contract under the liberal appeal standard for arbitration awards.8
A magistrate court in the Southern District of Texas went further and
held de novo that a class action waiver does not prevent a collective
action where the parties have declined to arbitrate.9 That
court based its analysis on the same distinction between class and
collective actions, noting that it would have denied certification had
the language in the agreements expressly prohibited collective
actions.10 A defendant successfully executing a strategy to
stay in court but prevent collective action will likely need a provision
that specifically waives collective action proceedings—a general class
action waiver probably will not work, especially if the case stays in
DOES THE WAIVER APPEAR IN AN ARBITRATION CLAUSE?
Another hurdle for the defendant to consider is that the waiver can be thrown out along with the unenforced arbitration clause if it is contained within the arbitration provision itself. In Vine v. PLS, the plaintiffs who signed the class action waiver “gave up their right to participate in a class action by virtue of their agreement to resolve disputes exclusively through individual arbitration.”11 But once the defendants waived arbitration, the court held that the plaintiffs were free to select another form of dispute resolution, including a class action, because the waiver functions as part of “the rules and procedures that apply if a dispute is arbitrated—not as an independently effective waiver.”12 The Fifth Circuit contrasted the class action waiver with a jury trial waiver appearing in a separate provision in the agreement “to show that the parties waived their right to a jury trial, full stop—not just as a consequence of agreeing to arbitrate.”13 The lesson taught by Vine v. PLS is of course that a waiver contained within the arbitration clause itself will be harder to enforce outside of arbitration.
IS THERE LANGUAGE IN THE COLLECTIVE ACTION WAIVER THAT
DEMONSTRATES ITS APPLICABILITY OUTSIDE OF ARBITRATION?
A collective action waiver contained within an arbitration clause may still be enforceable, provided that a court agrees it applies outside of an arbitration proceeding. A severance clause in the agreement will be crucial to executing this strategy. In Figueredo-Chavez v. RCI, the defendant sought to enforce a collective action waiver contained within an arbitration clause after waiving arbitration.14 The court held the collective action waivers to be enforceable outside of arbitration and precluded conditional certification of the class.15
The Figueredo-Chavez court relied heavily on the reasoning in the Epic Systems v. Lewis majority opinion written by U.S. Supreme Court Justice Neil Gorsuch. He observed that a collective action waiver in an employment agreement can serve to mitigate “pressure on the defendant to settle even unmeritorious claims,” which the district court observed demonstrates that a collective action waiver in an employment agreement does not serve only to facilitate an agreement to arbitrate.16 “Rather, a waiver of collective action also carries independent significance, outside the context of arbitration, because it protects defendants from potentially unfair pressure to settle these unmeritorious claims.”17 The court further emphasized, “[c]onsequently, the unavailability of an arbitral forum must not render a collective action waiver unenforceable.”18
The court also seized on a severability clause in the agreement
requiring the court to apply the agreements “to the greatest extent
permitted by law,” which distinguished those agreements from the
unenforced class action waiver in Vine.19 However,
the key issue for courts facing this issue is whether the waivers
contemplate functioning outside of arbitration.20 If they do,
whether by aid of a severability provision or not, then the court will
enforce the waiver regardless of arbitrability.
Aside from something employment litigators should generally be aware of, this line of cases teaches us some valuable best practices in drafting employment agreements. Employers will want all three provisions—an arbitration clause, a class action waiver, and a collective action waiver. The provisions should appear under separate subheadings to make clear they are distinct, independently enforceable provisions, and the agreements should also contain a severability clause. Lastly, the employer should incorporate language in the collective and class action waivers that demonstrate their applicability in a judicial proceeding rather than just arbitration.21 Taking these steps will maximize an employer’s ability to have their day in court without losing the ability to prevent collective action.TBJ
is a trial attorney in his 13th year of practice and a founding partner of Wallace & Allen. He is certified in labor and employment law by the Texas Board of Legal Specialization. His current practice is a hybrid of business, employment, and government litigation. Allen is a native Houstonian currently residing in Montrose with his wife, Aileen.
is a first-year attorney with Wallace & Allen. She has experience with complex business and commercial litigation matters, contract drafting and breach of contract disputes, and an array of other diverse issues. Dixson’s practice centers on business, employment, and government litigation. She was born and raised in Dallas but now resides in Houston where she continues to fearlessly root for the Dallas Cowboys.