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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.

 COVID-19

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.

Takeaway

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.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.

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Daniel J. Butler Labor & Employment Litigation Hunton Andrews Kurth Miami, FL
Associate

Dan advises and represents businesses facing complex employment law issues.

As part of his litigation practice, Dan represents employers in state and federal courts in discrimination, harassment, and retaliation lawsuits, whistleblower claims, and wage and hour collective actions. He also has experience representing companies before state and federal administrative agencies, including the Florida Commission on Human Relations and the Equal Employment Opportunity Commission.

To help clients avoid litigation, Dan regularly performs internal investigations and...

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Christopher Pardo Employment Lawyer Hunton Andrews Kurth
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Chris focuses his practice on the defense of complex employment cases in federal and state courts, arbitration, and before administrative agencies.

He represents a broad range of clients in employment, contractual, and labor matters, particularly in the defense of class and collective actions; complex wage and hour issues; trade secret litigation and restrictive covenant agreements; matters involving race, sex, age, disability, and pregnancy discrimination; wrongful termination; ERISA; RICO; and various state law claims, including wage and discrimination claims under the Massachusetts General Laws. Chris also assists employers in responding to administrative complaints and investigations before the Equal Employment Opportunity Commission, Massachusetts Commission Against Discrimination, the Massachusetts Attorney General's Office and various other state agencies, and defends employers in such actions.

Chris has successfully represented clients across the country, including in California, Connecticut, Georgia, Florida, Illinois, Maine, Massachusetts, New Hampshire, New York, North Carolina, Rhode Island, Tennessee and Texas.

Prior to joining Hunton Andrews Kurth LLP, Chris worked at other national and international law firms, served in the Massachusetts Commission Against Discrimination’s enforcement/investigations division, and worked as a judicial intern for Judge Angel A. Cortiñas of the Third District Court of Appeal of Florida. He was also a certified legal intern for the Office of the Public Defender for Miami-Dade County, where he defended indigent clients in felony criminal cases.

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Ryan A. Glasgow Employment Lawyer Hunton AK
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Ryan represents employers and executives in labor matters and complex employment litigation and provides strategic labor and employment advice.

Ryan’s labor and employment litigation experience is both broad and deep, and he is particularly skilled in defending employers against wage and hour class and collective actions. Ryan has been involved in over thirty-five of these cases, along with numerous other single plaintiff wage and hour matters, throughout the country. He has achieved success for his clients in many of these cases, including on...

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