As COVID-based Class Actions Loom, Fifth Circuit Provides Reminder for Arbitration Agreements and Class Action Waivers
A recent Fifth Circuit opinion held that a company’s arbitration agreement did not prevent employees from pursuing their claims as a collective arbitration, rather than individual claims. As class claims related to COVID-19 begin to surge, the opinion provides occasion for companies to review their arbitration agreements to ensure that the companies’ aims are clearly drafted.
The harm COVID-19 has wrecked on workplaces is no secret. As employees and employers grapple with remote work, pay reductions, and record unemployment, it is reasonable to expect a surge of employment litigation in the months ahead.
That litigation will include class and collective action cases. For example, groups of employees may claim under the FLSA that their employer failed to accurately record time worked remotely. Another group of laid-off workers may claim the company failed to comply with the WARN Act.
One tool to curb expensive class and collection litigation is the class action waiver, usually contained in arbitration agreements. But a recent Fifth Circuit opinion highlights the need to be careful when drafting such agreements as the mere existence of an arbitration agreement may not always prevent class or collective actions.
The Fifth Circuit Opinion
In Sun Coast Resources v. Conrad, an employee brought an overtime claim in arbitration under the FLSA pursuant to the employee’s arbitration agreement, and he pursued the arbitration claim on behalf of himself and a class of similarly-situated employees. Sun Coast objected to the inclusion of class claims, but the arbitrator ultimately held that the arbitration agreement allowed such claims. On appeal, the district court agreed with the arbitrator, so Sun Coast filed an appeal with the Fifth Circuit Court of Appeals.
The Fifth Circuit affirmed the district court’s ruling, holding that the arbitrator’s interpretation of the agreement was appropriate. Notably, the agreement required employees to submit to binding arbitration for “any claim that could be asserted in court or before an administrative agency,” with a few exceptions. The appellate panel found that the existence of certain exceptions and the lack of a class action carve-out within those exceptions, suggested that the employer did not wish to prevent class claims. The agreement also incorporated the American Arbitration Association’s rules for employment disputes, which permit class arbitrations. These two factors, cited by the arbitrator, provided enough for the Fifth Circuit to affirm the award.
Interestingly, the Fifth Circuit did not address the Supreme Court’s recent Lamps Plus ruling, which we blogged about earlier. In Lamps Plus, the Supreme Court held that, like individual arbitration, both parties must consent to class arbitration. And where an agreement is silent as to class claims, “silence is not enough” to infer consent to class arbitration.
The Fifth Circuit likely ignored discussion of Lamps Plus because the standard that the judiciary uses to review an arbitrator’s interpretation of an arbitration agreement is highly deferential. As the Fifth Circuit wrote, the court need only check to see if the arbitrator’s decision has “some basis in the arbitration agreement,” explaining that “the correctness of the arbitrator’s interpretation is irrelevant so long as it was an interpretation.” (emphasis in original). Although the employer did not expressly consent to class arbitration, the arbitrator found enough language to draw a conclusion that such consent was implied. And with a deferential standard of review, the Fifth Circuit decided not to disturb that determination.
With reduced revenues and a constantly evolving set of laws and regulations to comply with, companies may be particularly vulnerable to the threat of a class action during and in the wake of the COVID-19 crisis. The Conrad decision highlights a critical issue to consider in drafting arbitration agreements. To avoid ambiguity, arbitration agreements should be clear as to the availability (or lack thereof) of class arbitration. Although the Supreme Court has made clear that silence is not enough to infer consent, Conrad demonstrates that consent can, in some circumstances, be inferred indirectly through other provisions of the agreement. Thus, it is best practice to specifically indicate whether the agreement precludes class and collective actions.