Eighth Circuit Upholds Collective Action Waiver in Arbitration Agreement

Practice area:

The U.S. Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, upholding the enforceability of a class action waiver in a consumer arbitration agreement, was applauded by employers, who initially (reasonably) assumed that Concepcion paved the way for class action waivers in employment agreements. The National Labor Relations Board, however, soon made this area of law murky, holding that Concepcion did not apply in the employment context. In In re D.R. Horton, the NLRB concluded that class action waivers inherently infringe on employees’ right under Section 7 of the National Labor Relations Act (NLRA) to engage in protected concerted activity. Earlier this month, in Owen v. Bristol Care, the first appellate decision discussing the issue since In re D.R. Horton, the United States Court of Appeals for the Eighth Circuit rejected the NLRB’s reasoning and upheld the enforceability of a class or collective action waiver contained in an employment arbitration agreement.

The facts relevant to the appeal are few: The employer, Bristol Care, operates residential care facilities for elderly residents. The named plaintiff, Sharon Owen, was an administrator at one of Bristol Care’s facilities. Upon hire, Owen signed a Mandatory Arbitration Agreement (MAA), which contained, among other things, a class or collective action waiver provision, prohibiting Owen from arbitrating claims subject to the agreement on a class basis.

Notwithstanding the MAA, Owen filed suit against Bristol Care in September of 2011, on behalf of herself and similarly situated current and former employees, alleging that the company intentionally misclassified administrators and failed to pay them overtime compensation under the Fair Labor Standards Act (FLSA). Bristol Care moved to compel arbitration, but the district court denied the motion, finding the MAA invalid because of the class action waiver. Specifically, the district court held that Concepcion does not apply when the claims at issue arise under the FLSA. Deferring to the rationale of In re D.R. Horton and a district court decision from the Southern District of New York, Chen-Oster v. Goldman, Sachs & Co., the district court concluded that class action waivers are fundamentally inconsistent with the FLSA, which provides the right for collective action, and therefore invalid in FLSA cases.

The Eighth Circuit quickly disposed of the district court’s rationale, finding no conflict between the FLSA’s offering of a collective action option and the policy established by the Federal Arbitration Act (FAA), favoring arbitration agreements. Specifically, the Court rejected the notion that the FLSA confers any “right” upon employees to bring a class action, and noted that, given the requirement that employees affirmatively “opt in” to FLSA collective actions, they must also be allowed to “opt out” via an agreement waiving their ability to pursue wage and hour claims on behalf of a class.

The Court also rejected Owen’s argument that class action waivers conflict with the NLRA, which was enacted seven years after the FAA was initially enacted in 1925. The Court pointed out that the FAA was subsequently reenacted in 1947 (after the NLRA, Norris LaGuardia Act, and the FLSA itself), “suggest[ing] Congress intended its arbitration protections to remain intact even in light of the earlier passage of three major labor relations statutes.”

The Court distinguished In re D.R. Horton, which it characterized as limited to arbitration agreements prohibiting all protected concerted action. The MAA, on the other hand, would allow an employee to file a charge with an administrative agency, which might result in that agency, e.g. the EEOC, filing suit on behalf of a class of employees. However, the Court also stated that it did not need to, and was not inclined to, defer to the NLRB’s interpretation of Supreme Court precedent such as Concepcion.   In sum, noting and adopting the position taken by most of the district courts to consider the issue since In re D.R. Horton, the Court held the arbitration agreement and class action waiver enforceable and reversed the district court accordingly.

Wage and hour class actions present a significant risk to employers because they are often complex and high stakes. This risk is usually uninsured, so whether it can be controlled by contract is a question of great importance. Owen v. Bristol Care is a great victory for employers in the Eighth Circuit. Because the issue remains unsettled elsewhere, however, employers outside the Eighth Circuit who incorporate class action waivers into their arbitration agreements with employees remain at risk that their agreements will be declared invalid or that they will be charged with engaging in an unfair labor practice.