UPDATES & ANALYSIS

Eighth Circuit Validates Class Action Waivers in FLSA Cases

by Tom Cunningham | January 9, 2013

By Tom Cunningham

The U.S. Court of Appeals for the Eighth Circuit presented employers with a New Year’s victory on Monday when it issued its decision in Owen v. Bristol Care, Inc., 2013 WL 57874 (8th Cir. Jan. 7, 2013). The Court held that an arbitration agreement that contained a class action waiver provision prohibiting the employee from arbitrating claims on behalf of a class was valid and enforceable.

Sharon Owen was employed as an administrator at an elderly residential care facility operated by her employer, Bristol Care, Inc., in Cameron, Missouri.  When Owen was hired, she signed an agreement in which the parties agreed to resolve all disputes that might arise between them by binding arbitration.  The agreement expressly included within its scope any claim for violation of the Fair Labor Standards Act (“FLSA”) and state wage and hour laws.  The agreement also contained a waiver that prohibited the parties “from arbitrating claims subject to the agreement as, or on behalf of, a class.”  Finally, the agreement clearly stated the employee did not waive the right to file a complaint with the EEOC or any other federal, state or local agency designated to investigate complaints of harassment, discrimination, and other statutory violations.

A few years later, Owen initiated a lawsuit against Bristol Care alleging on behalf of herself and other similarly situated current and former employees that Bristol Care had misclassified facility administrators like herself as exempt employees for purposes of the overtime provisions of the FLSA and state law.  She sought overtime compensation for herself and the putative class members.  Bristol Care moved to stay the federal court case and compel arbitration in accordance with her agreement and the Federal Arbitration Act (“FAA”).  The district court denied Bristol Care’s motion to compel, holding that the agreement was invalid because it contained a class action waiver.  The district court distinguished the U.S. Supreme Court’s recent decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), which upheld the enforceability of a class action waiver in a consumer contract, on the grounds that Concepcion was not controlling in the employment context.  Instead, the court relied in part on the decision of the National Labor Relations Board in D.R. Horton, Inc., 357 NLRB No. 184 (2012), appeal pending, No. 12-60031 (5th Cir. filed Jan. 13, 2012).  The district court concluded that class action waivers are invalid in FLSA cases because the FLSA expressly provides the right to bring a class action.  We discussed the D.R. Horton case last year in this blog post.

The Eighth Circuit quickly disposed of these arguments and reversed.  The Court observed that collective actions under the FLSA require an employee to affirmatively opt in to the lawsuit.  Even assuming Congress intended to create some “right” to class actions, the Court reasoned, the employee enjoys the freedom to waive participation in a class action as well.  Furthermore, the Eighth Circuit criticized the district court’s attempt to distinguish the Concepcion case and its reliance on the NLRB’s decision in D.R. Horton.

The D.R. Horton ruling, the Eighth Circuit explained, was limited to arbitration agreements barring all protected concerted action.  Bristol Care’s arbitration agreement and class action waiver were validated because they did not preclude an employee from filing a complaint with the Department of Labor (which has jurisdiction over FLSA claims), and nothing in the agreement precluded that agency from investigating and, if necessary, filing a class action lawsuit on behalf of the employees.  Furthermore, the Eighth Circuit declined to give any deference to the NLRB’s decision in D.R. Horton.  While the NLRB’s construction of the NLRA is entitled to considerable deference, the NLRB has no special competence or experience in interpreting the FAA and the Eighth Circuit was not obligated to defer to the NLRB’s interpretation of the Concepcion decision.  Consequently, the Eighth Circuit found the class action waiver to be enforceable, reversed the district court and directed it to enter an order granting Bristol Care’s motion to stay and compel arbitration.

The Eighth Circuit decision in Owen represents a considerable “pushback” by the Court in response to reliance on the NLRB’s D.R. Horton decision to invalidate arbitration agreements with class action waivers.  As we noted last January, the D.R. Horton decision was issued less than two years after the Supreme Court had decided several cases that seem to point to approval of the very class action waiver the NLRB invalidated, including AT&T Mobility v. Concepcion.  At that time, legal commentators expressed concern that D.R. Horton may be a “game changer” in regard to employers’ use of arbitration agreements.  The Owen decision suggests that assessment may be premature.  Owen is compatible with the U.S. Supreme Court’s continued approval of arbitration agreements in the employment context.

In fact, the Supreme Court recently granted certiorari in two arbitration cases.  In American Express Co. v. Italian Colors Restaurant, No. 12-133, the Court will determine whether the FAA permits federal courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the grounds they do not permit class arbitration of a federal law claim.  The Court will also hear arguments in Oxford Health Plans, L.L.C. v. John Ivan Sutter, M.D., No. 12-135, to address whether the parties to an arbitration agreement authorize class arbitration when the provision states that “any dispute” will be submitted to arbitration.  Nyemaster Goode will continue to monitor these important cases.

For the moment, however, the Owen decision validates employers’ similar mandatory arbitration agreements that contain class action waivers in the states located in the Eighth Circuit.

Tags: Eighth Circuit