Labor & Employment Law Daily SDNY won’t enforce mandatory arbitration provision rolled out after collective action filed
Wednesday, March 18, 2020

SDNY won’t enforce mandatory arbitration provision rolled out after collective action filed

By Lisa Milam, J.D.

The court saw the arbitration policy rollout as an attempt to thwart potential class members from joining the litigation.

A federal court overseeing a federal and state-law overtime action refused to enforce mandatory arbitration agreements instituted by the employer after the putative class and collective action complaint was filed, finding strong indications the arbitration policy was unveiled in an attempt to prevent employees from joining the collective. The court invalidated the arbitration agreement as to potential members of the collective action, but it did not weigh in on whether the agreement was enforceable as to the employer’s other employees, “nor its preclusive effect on other potential collective actions.” The court also refused to impose a protective order barring the employer’s communications with potential members of the collective (O’Conner v. Agilant Solutions, Inc., March 11, 2020, Woods, G.).

Overtime class, collective action. The lead plaintiffs worked as field technicians for the defendant, employed either directly or indirectly by the company, repairing computers and troubleshooting problems at the worksite of the company’s clients. They were sent emails after the end of every workday containing “tickets” that would inform them of the next day’s client location and provide details about the assignment, in order to prepare for the following workday. Consequently, they alleged that they worked uncompensated overtime. In 2018, they filed a putative collective action under the FLSA and class action under the New York Labor Law. In May 2019, the plaintiff moved for FLSA certification and the court conditionally certified the collective in November 2019.

Arbitration program rollout. Meanwhile, in August 2019, the company rolled out a new policy that required employees (including putative collective and class members) to sign mandatory arbitration agreements as a condition of employment. (The agreement also imposed a 12-month statute of limitations.) The agreement did not disclose that the current litigation was pending, or that putative class members would abandon their right to join the case if they signed the agreement. Nor did the company convey this information through other means. In a call explaining the new arbitration policy to the frontline managers who would be responsible for procuring the technicians’ signatures, the executive director did not inform them of the litigation. Managers were directed to obtain employees’ signatures within two business days.

Defense counsel’s role. Defense counsel in this case was “intimately involved” in the rollout of the arbitration program; in fact, he drafted the arbitration agreement, the court observed. And, 24 hours after introducing the agreement to company managers, defense counsel sought feedback on the document. The executive director joked that if the company got “any resistance” from employees, he would give out counsel’s “home number and address.”

Handling the “holdouts”. In other emails, company officials discussed the status of the signatures and of their efforts to compel a few holdouts into signing; they speculated that the employees’ hesitance “might be a sign” that they were thinking of joining the litigation. The officials continued to update each other on the status of the signatures. They objected when one employee asked for 30 days to respond so that he could have a lawyer review the agreement; one of them suggested, “we could say he can’t work until it’s signed?” The next day, they contemplated by email how to “handle” the lone remaining holdout; one official suggested they wait to discuss the matter with defense counsel. One official wondered whether the employee was “in touch with the same attorneys as the others,” apparently referring to plaintiff’s counsel in the case.

A change of tune. During a September telephone conference to address defense counsel’s communications with putative class members, the court authorized expedited discovery regarding the employer’s’ communications with class members, at which point management “abruptly changed its position” about the mandatory nature of the arbitration policy. Now, it characterized the agreement as optional. And a manager was instructed to email the last holdout to inform him that he was not required to sign the agreement, and that he should only do so if felt “comfortable.” The company official then directed that this email be provided to him so that he could turn it over as part of the document production.

Arbitration agreements invalidated. The court granted the plaintiffs’ motion toinvalidate the arbitration agreements, finding the employer’s communications with the plaintiffs regarding the arbitration policy were “improper,” “misleading,” and “coercive.” The employer made no effort to convey to putative class members that by signing the agreements, they would waive their right to join the suit. Coupled with the active role of defense counsel in the arbitration rollout, the evidence supported a finding that the “novel arbitration policy” was implemented in an attempt to thwart employee participation in the collective and class actions, the court said. (The evidence also suggested that the policy was instituted in bad faith—although the court did not (because it need not) issue a factual finding on that point.) Consequently, the court held the arbitration agreements were unconscionable, and unenforceable as to the putative plaintiffs in the case.

Epic Systems was not controlling. The employer argued to no avail that the Supreme Court’s 2018 decision in Epic Systems Corp. v. Lewis compelled enforcement of the arbitration agreements. While that decision held that, as a general rule, arbitration agreements must be enforced notwithstanding the NLRA’s protections for protected and concerted activity, “Epic Systems does not stand for the proposition that arbitration agreements must be enforced in all circumstances, even if they have been procured in an unconscionable manner,” the court explained. Unlike here, in Epic Systems, there was no contention the arbitration agreements were procured through fraud, duress, “or in some other unconscionable way that would render any contract unenforceable,” as the High Court expressly noted. “Consequently, Epic Systems does not displace the authority recounted above that district courts have inherent authority to manage the notice-giving process in class or collective actions or that arbitration agreements may be unconscionable if procured through misleading or deceptive communications.”

No NLRB jurisdiction. The court also rejected the employer’s “novel proposition” that the NLRB retained exclusive jurisdiction for determining the enforceability of an arbitration clause. In support of this contention, the employer cited the Board’s 2019 ruling in Cordua Restaurants, Inc., but that decision and its holding had no bearing on the case at hand. The matter in dispute was not whether the employer promulgated the arbitration policy in response to employees’ opt-in activity but rather, whether it imposed the arbitration agreement in a manner that “pose[d] a serious threat to the fairness of the litigation process, the adequacy of representation and the administration of justice generally.”

Finally, the court dismissed as “nonsensical” the employer’s argument that preemption principles restrained the court from addressing the legality or enforceability of the arbitration agreement before it. “This is a collective action under the FLSA. The FLSA is a federal statute. Hence, it does not make sense to argue that this action is preempted by the NLRA,” wrote the court, pointing out the “radical consequences” were the employer’s position adopted.

Narrow relief. The court stressed its holding was narrow, limited to putative members of the FLSA collective action and thus squarely within its “discretionary authority to oversee the notice-giving process.” The court also granted the plaintiffs’ request to issue corrective notice apprising putative plaintiffs of their right to join the suit. However, the court denied the plaintiffs’ motion for a protective order enjoining the employer from further communications with putative class members, deeming such relief broader than necessary to protect employees’ interests in this case.

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