Fifth Circuit Rules No Notice of Collective Actions for Employees With Arbitration Agreements

The U.S. Court of Appeals for the Fifth Circuit Court recently issued an opinion with major implications in In re: JPMorgan Chase & Company that impacts collective actions under the Fair Labor Standards Act (FLSA). On February 21, 2019, the Fifth Circuit became the first court of appeals to rule on whether a court may send notice of a collective action to employees with valid arbitration agreements. The court held that the answer is no: “district courts may not send notice to an employee with a valid arbitration agreement unless the record shows that nothing in the agreement would prohibit that employee from participating in the collective action.”

Background

In recent years, courts nationwide have struggled with how to reconcile FLSA collective actions and arbitration agreements.

Judges generally decide early on whether an FLSA lawsuit will proceed on a collective basis, well before addressing the merits of the action. A court has discretion to facilitate notice to individuals who are eligible to participate in the collective action.

When employees who are potential members of a collective action have arbitration agreements that would prevent them from joining the lawsuit, district courts are split on how to proceed. Some have excluded such employees from receiving notice. Others have included them, either on the theory that the employees have a right to receive notice or on the theory that their agreements might be unenforceable.

This issue was front and center in JPMorgan Chase. The district court had certified an FLSA collective action and ordered that approximately 42,000 current and former Chase employees were to receive notice of the litigation. However, 35,000 of these employees had signed arbitration agreements waiving the right to join a collective action against Chase. The plaintiffs did not contest that at least some of these 35,000 employees had signed arbitration agreements or that the agreements were valid and enforceable.

The Court’s Decision

The Fifth Circuit unequivocally held that a court should not send notice of a collective action to employees with valid arbitration agreements. It noted that, under a 1989 decision by the Supreme Court of the United States, a district court has discretion to facilitate notice to potential plaintiffs, but this discretion is not “unbridled.” The Fifth Circuit concluded that giving notice of an FLSA collective action to employees who, because they have valid arbitration agreements, cannot participate in that lawsuit “merely stirs up litigation.” The court also observed that a judge must avoid appearing to endorse the merits of a collective action and that an employee does not have the right to receive notice of a possible FLSA claim.

The court’s opinion gives instructions on how a court should resolve this issue. If a dispute about whether a potential class member agreed to arbitrate FLSA claims exists, the employer must show that the employee has a valid arbitration agreement. The court should consider evidence on this point, according to the Fifth Circuit’s ruling, even though the certification decision may come early in the case. If the preponderance of the evidence shows that a valid agreement exists, the court stated, “it is error for a district court to order notice to be sent to that employee.”

Key Takeaways

The Fifth Circuit has given employers with arbitration programs a powerful defense against certification of FLSA collective actions. Employers with such programs may want to ensure that their arbitration agreements are valid and enforceable, as plaintiffs will likely test the Fifth Circuit’s newly enunciated instructions for addressing this issue. Other courts of appeals may address this issue, as it has splintered courts nationwide. We will provide updates as new developments occur.