In two closely watched cases, the Second Circuit has ruled that the Fair Labor Standards Act (“FLSA”) does not preclude the waiver of class action claims (known technically as “collective actions” under the FLSA). In decisions issued on August 9th and 12th, the Second Circuit reversed lower court rulings that had refused to enforce individual arbitration agreements signed by the plaintiffs.  Instead, the appeals court sent the cases back to the district courts with instructions to compel the plaintiffs to honor their agreements with their employers and to submit their FLSA overtime disputes to separate, individual arbitration proceedings.

Following the Supreme Court’s recent decision in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), the Second Circuit in Sutherland v. Ernst & Young, case no. 12-cv-304, rejected the plaintiff’s arguments that the FLSA contained a “contrary congressional command” barring waivers of class arbitration, and, further, that the plaintiff could not “effectively vindicate” her rights in an individual arbitration, inasmuch as such a proceeding would be “prohibitively expensive.”  In Raniere et al. v. Citigroup Inc. et al., case no. 11-cv-5213, the Second Circuit issued the same decision on the same basis.

In Sutherland, the plaintiff, an audit employee for Ernst & Young (“E&Y”), had agreed as part of her signed offer letter and a signed confidentiality agreement with E&Y to mandatory mediation and arbitration of employment related disputes.  The arbitration agreement specifically stated that “[c]laims based on federal statutes such as . . .the Fair Labor Standards Act,” “[c]laims based on state statutes and local ordinances, including state and local anti-discrimination laws,” and “[c]laims concerning wages, salary, and incentive compensation programs” would be subject to the terms of the arbitration agreement.  The agreement also included specific terms stating that “Neither the Firm nor an Employee will be able to sue in court in connection with a Covered Dispute,” (emphasis omitted); and “Covered Disputes pertaining to different [e]mployees will be heard in separate proceedings.”

In Citigroup, the relevant arbitration agreement, Citi’s Employment Arbitration Policy, made

arbitration the required and exclusive forum for the resolution of all disputes arising out of or in any way related to employment based on legally protection rights . . . that may arise between an employee or former employee and Citi . . . including, without limitation, claims, demands, or actions under . . . the Fair Labor Standards Act of 1938 . . . and any other federal, state, or local statute, regulation, or common-law doctrine regarding employment, employment discrimination, the terms and conditions of employment, termination of employment, compensation, breach of contract, defamation, retaliation, whistle-blowing, or any claims arising under the Citigroup Separation Pay Plan.

Citi’s Employment Arbitration Policy also explicitly provided that “this Policy applies only to claims brought on an individual basis. Consequently, neither Citi nor any employee may submit a class action, collective action, or other representative action for resolution under this Policy.”

The Second Circuit rejected the District Court decisions that a waiver of the right to proceed collectively under the FLSA was unenforceable as a matter of law.  Instead, the Second Circuit held that no contrary congressional command required it to reject the waiver of class arbitration in the FLSA context.  Moreover, it noted in Sutherland that its conclusion was in line with the holdings of the Fourth, Fifth, and Eighth Circuits—every Court of Appeals to consider the issue to date.

The decisions are a victory for employers, who have recently been hit with a growing number of large collective actions under the FLSA by employees seeking overtime wages. The Second Circuit’s interpretation of and reliance on the Italian Colors decision suggests that the Supreme Court would rule in a similar manner. In the meantime, employers would be wise to consider ways to adopt such waivers in agreements with employees.