Labor & Employment Law I JANUARY 30, 2020

Court Fashions Test For Challenging Collective Action Notices, Based on Arbitration Agreements

Let’s say that some, or all, of a company’s employees have signed agreements to arbitrate employment-related claims. Let’s also assume an employee brings a lawsuit as a so-called collective action seeking unpaid overtime for herself and other employees. What is the employer to do? 

A Facebook employee, Susie Bigger, sued Facebook for alleged violations of the Fair Labor Standards Act overtime pay requirements. She brought the action on behalf of herself and other similarly situated employees.

After Bigger and Facebook engaged in some discovery, Bigger moved to conditionally certify a collective action, and asked the court to authorize notice to: “[a]ll individuals who were employed by Facebook as Client Solutions Managers at level IC3 or IC4 at any location in the United States” during the period three years before conditional certification to the present. Such a notice gives others the chance to join the lawsuit.

The federal district court authorized notice of Bigger’s suit to be sent to the entire group of employees Bigger proposed. Facebook, however, argued the court’s authorization was improper because many of the proposed notice recipients had entered arbitration agreements precluding them from joining the action. Facebook also argued the court’s authorization of notice was improper because Facebook is entitled to summary judgment. The second argument is beyond the scope of this article.

The appellate court allowed an immediate appeal.

On appeal, the question was whether a court may authorize notice to individuals who, according to the defendant, entered valid arbitration agreements waiving their right to join the action.

The court recognized the liberal federal policy favoring arbitration agreements, citing to Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Under that policy, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.”

Even so, the court of appeals noted some competing considerations. The twin goals of collective actions are enforcement and efficiency: enforcement of the FLSA, and efficiency in the resolution of disputes—by resolving in a single action common issues arising from the same alleged illegal activity.

According to the court, collective actions almost necessarily present certain dangers. One is the opportunity for abuse of the collective action device. Plaintiffs may use the collective action to increase the defendant’s financial exposure to try to force settlement. Also, giving notice to other persons may, in certain circumstances, become indistinguishable from the improper solicitation of claims. There is also the risk of confusing potential class members who may not be able to join the lawsuit because they have signed arbitration agreements.

Courts “must be scrupulous to respect judicial neutrality,” avoiding even the appearance of endorsing the merits of the lawsuit.

The appeals court held that when a defendant opposes the issuance of notice and alleges that proposed notice recipients have entered into arbitration agreements waiving the right to participate in the action, a court may authorize notice to those individuals unless (1) no plaintiff contests the existence or validity of the alleged arbitration agreements, or (2) after the court allows discovery on the alleged agreements’ existence and validity, the defendant establishes by a preponderance of the evidence, the existence of a valid arbitration agreement for each employee it seeks to exclude from receiving notice.

Thus, a defendant in this situation can oppose the giving of notice to other persons if it follows the guidelines set forth in the opinion. And the district court must give the defendant an opportunity to make that showing.

The case is Bigger v. Facebook, Inc, ___F.3d___, 2020 WL 401804 (7th Cir., 2020).