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Seventh Circuit Issues New Standard on Class Notice to Employees who Signed Arbitration Agreements

The U.S. Court of Appeals for the Seventh Circuit, in a case of first impression, has developed a required framework for a district court to evaluate when a plaintiff asks the Court to authorize notice to putative class members who have entered into arbitration agreements with their employer.  The Seventh Circuit held that notice of a collective action may be sent to putative class members who entered into arbitration agreements with class action waivers, unless (1) no plaintiff contests the existence or validly of the alleged arbitration agreements, or, if contested by plaintiffs (2) the defendant establishes, by a preponderance of the evidence, after the court allows discovery on the alleged agreements’ existence and validity,  that a  valid arbitration agreement exists for each employee it seeks to exclude from receiving notice.

The plaintiff, Susie Bigger, brought action against Facebook on behalf of herself and others “similarly situated” for violation of the FLSA overtime-pay requirements.  Bigger asked the Court to authorize notice to the class of people she alleged were similarly situated.  Facebook objected to the notice arguing in part that many of the proposed notice recipients had entered arbitration agreements precluding them from joining the action and therefore those individuals were not “similarly situated” and that the notice would be misleading as they would not be eligible to join the action.  The district court authorized notice of the collective action to the entire group of employees the plaintiff proposed and Facebook appealed to the Seventh Circuit

In a decision entered on January 24, 2020, the Seventh Circuit created an entirely new framework that it will require all district courts within its circuit to utilize when a plaintiff seeks to send notice to individuals who entered into arbitration agreements with class action waivers.  The Seventh Circuit reviewed the district court’s facilitation of notice for abuse of discretion. The question faced by the Court of Appeals 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.  While this issue was considered in February 2019 by the U.S. Court of Appeals for the Fifth Circuit, in In re JPMorgan Chase & Co., 916 F.3d 494 (5th Cir. 2019), this is an issue of first impression for the Seventh Circuit. The Seventh Circuit noted that while the twin goals of collective actions are enforcement and efficiency, they also recognized that collective actions present real dangers.  Citing to the seminal Hoffmann-La Roche Inc. v. Sperling, 493 U.S. 165, 174 (1989) decision, the Seventh Circuit recognized the potential for abuse of the collective-action device and emphasized that courts “must be scrupulous to respect judicial neutrality” when monitoring the preparation and distribution of notice.

The Seventh Circuit then differentiated the case at bar from the Fifth Circuit’s case, In re JPMorgan Chase & Co., on the grounds that the plaintiff here did not yield to Facebook’s assertions about the existence and validity of the alleged arbitration agreements as the plaintiff had in the Fifth Circuit.

The Seventh Circuit created a new test for district courts to utilize in these circumstances and concluded that a court: (1) may not authorize notice to individuals whom the court has been shown entered mutual arbitration agreements waiving their right to join the action; and (2) must give the defendant an opportunity to make that showing.

When a defendant opposes the issuance of notice by asserting that some or all of the proposed notice recipients entered mutual arbitration agreements containing class action waivers, the trial court must first determine “whether a plaintiff contests the defendant’s assertions about the existence of valid arbitration agreements entered by proposed notice recipients.” If no plaintiff contests those assertions, then the court may not authorize notice to the employees whom the defendant alleges entered valid arbitration agreements. However, if a plaintiff contests the defendant’s assertions, then — before authorizing notice — the trial court must permit the parties to submit additional evidence of the agreements’ existence and validity.  This may require that the parties engage in discovery on the issue of the existence and enforcement of the agreements.  Ultimately, the employer carries the burden to show, by a preponderance of the evidence, the existence of a valid arbitration agreement with each employee it seeks to exclude from receiving notice.  This framework could ultimately prove to be burdensome and costly for employers who implemented arbitration programs.

The Seventh Circuit vacated the district court’s order issuing notice and remanded for the lower court to apply the new standard. We will be watching closely to evaluate how the district court in this case and other cases applies the Seventh Circuit’s new framework.

Jackson Lewis P.C. © 2020

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