Labor & Employment Law Daily Seventh Circuit adopts new framework to decide whether employees who signed arbitration agreements may get notice of collective action
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Wednesday, January 29, 2020

Seventh Circuit adopts new framework to decide whether employees who signed arbitration agreements may get notice of collective action

By Ronald Miller, J.D.

A court may not authorize notice of a collective action to individuals shown to have entered mutual arbitration agreements waiving their right to join the action. Moreover, the court must give the employer an opportunity to make that showing.

In a case of first impression, the Seventh Circuit held that a district court may authorize notice of a collective action to individuals who have signed arbitration agreements waiving the right to join such actions, unless no plaintiff contests the existence or validity of the agreements; or, after the court allows discovery, the employer establishes by a preponderance of the evidence the existence of a valid arbitration agreement for each employee it seeks to exclude from receiving notice. The decision of the district court was vacated and the matter remanded for application of the new standard. On the merits, however, the appeals court affirmed the district court’s denial of summary judgment in this overtime suit against Facebook (Bigger v. Facebook, Inc., January 24, 2020, Kanne, M.).

The employee worked as a client solutions manager (CSM) and was part of a team selling advertisements on the Facebook platform. Facebook categorizes all CSMs into levels based on experience and expectations for the position. CSMs in levels 1 and 2 are deemed eligible for overtime pay, while CSMs in levels 3 and higher are deemed overtime-ineligible. The employee, a level-4 CSM, did not receive overtime pay. In 2017, she sued the social media company in a putative collective action alleging violations of the FLSA’s overtime provisions.

Notice dispute. After the parties engaged in some discovery, the employee moved to conditionally certify the collective action. She asked the court to authorize notice to all members of the putative collective. Facebook argued such authorization was improper because many of the proposed notice recipients had entered arbitration agreements with waivers precluding them from joining a collective action.

In support of its opposition to the notice, Facebook provided the district court with two arbitration agreement templates, but it did not supply the actual documents that the proposed recipients allegedly executed. Nor did it show which proposed recipients entered arbitration agreements. The district court authorized notice to be sent to the entire group of employees proposed by the named plaintiff.

This appeal ensued. At issue was whether a court may authorize notice to individuals who allegedly entered mutual arbitration agreements waiving their right to join the action.

Waiver of right to join action? The Seventh Circuit began with Facebook’s argument that the district court abused its discretion by authorizing notice to all members of the proposed collective. Specifically, it argued that the district court abused its discretion because most employees in the group entered arbitration agreements waiving their right to participate in the action. It argued that the notice would misinform most recipients and would unfairly amplify settlement pressure. For her part, the employee responded that all employees in the proposed collective were “potential plaintiffs” because they “were victims of a common policy or plan that violated the FLSA.” She also pointed out that the district court can determine later, after more discovery, whether anyone who opted in is not similarly situated to the named plaintiff.

While collective actions help prevent violations of the overtime pay provisions and enable employees to pool their resources when seeking redress, they also present the opportunity for abuse by increasing the pressure to settle, no matter the action’s merits, the appeals court observed. To counter these dangers, trial courts have discretion to monitor the preparation and distribution of notice to “potential plaintiffs.”

The Seventh Circuit test. Given these considerations, the Seventh Circuit concluded that a court may not authorize notice to those individuals who have been shown to the court to have entered mutual arbitration agreements waiving their right to join the action. Moreover, the court must give the employer an opportunity to make that showing. Even if efficiency favors sending notice to individuals who entered arbitration agreements, efficiency cannot override the court’s obligations to maintain neutrality and to shield against abuse of the collective action device, the appeals court reasoned.

Thus, when an employer opposes notice by asserting that proposed notice recipients have entered into mutual arbitration agreements, the trial court must take specific steps:

  • First, the court must determine whether a plaintiff contests the defendant’s assertions about the existence of valid arbitration agreements entered by the proposed notice recipients. If no plaintiff contests those assertions, then the court mat not authorize notice to the employees whom the defendant alleged entered valid arbitration agreements.
  • However, if a plaintiff does contest the defendant’s assertions that a valid arbitration agreement exists, then—before authorizing notice—the court must permit the parties to submit additional evidence on the agreements’ existence and validity.
  • If the employer shows that an employee has entered into a valid arbitration agreement, the court may not authorize notice to that employee, unless the record reveals that nothing in the agreement would prohibit that employee from participating in the action.

No conflict with federal pro-arbitration policy. The appeals court stressed that requiring an employer to show the existence and validity of an arbitration agreement for each employee it seeks to exclude from receiving notice does not run against the federal policy favoring arbitration. This federal policy does not require a court to simply take an employer at its word when it says certain employees entered valid arbitration agreements, the court pointed out.

Remand to apply the new standard. Because the appeals court has only now provided an analytical framework for determining whether a court may issue a notice of a collective action to potential class members, the district court did not apply the correct standard. Accordingly, the lower court’s order authorizing notice was vacated and remanded for the court to take the prescribed steps. Specifically, on remand, the district court should allow the parties to submit additional evidence on the existence of valid arbitration agreements between Facebook and the proposed notice recipients

Administrative exemption a fact question. Facebook had also moved for summary judgment arguing that the employee—the only plaintiff at this point—was exempt from overtime as an administrative employee. The parties agreed that she was highly compensated (thus invoking the less stringent exemption test). However, they disputed whether she customarily and regularly performed exempt administrative duties.

Here, the appeals court agreed with the employee that factual issues remained concerning the extent to which she engaged in exempt duties. The record did not present a clear picture of her duties and how they relate to Facebook’s and its customers’ enterprises. Moreover, the appeals court determined that it could not conclude, as a matter of law, that the employee customarily and regularly did anything more than apply well-established techniques, procedures, or specific standards prescribed by Facebook in the performance of her job duties. Because the record evidence did not establish all the necessary facts to determine whether the named plaintiff fit the administrative exemption, Facebook was properly denied summary judgment.

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