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Class action waiver valid; employee who failed to opt out must arbitrate individually

By Ronald Miller, J.D.

Bloomingdale’s may compel arbitration under the Federal Arbitration Act (FAA) of a putative class action brought by a former employee to recover unpaid overtime wages, ruled the Ninth Circuit. Finding the employer’s arbitration agreement valid, the appeals court held that under the FAA, the agreement must be enforced according to its terms. Because the employee failed to opt out of the arbitration agreement when given the opportunity, she was bound by a provision barring pursuit of her overtime claim on a class action basis (Johnmohammadi v Bloomingdale’s, Inc, June 23, 2014, Watford, P).

The plaintiff brought a class action to recover unpaid overtime wages from her former employer. She initially filed this action in state court, and all of her claims arose under state law. However, after Bloomingdale’s removed the action to federal court, it moved to compel arbitration. The district court granted the motion after determining that shortly after being hired by the employer, the employee entered into a valid, written arbitration agreement and that all of her claims fell within the scope of the agreement.

Stay or dismiss. The Ninth Circuit observed that in circumstances such as this, Sec. 3 of the FAA seems to direct that the action shall be stayed pending completion of arbitration. That is the position held by the Third and Tenth Circuits. However, notwithstanding the language of Sec. 3, the Ninth Circuit has held that a district court may either stay the action or dismiss it outright when, as here, the court determines that all of the claims raised in the action are subject to arbitration. The choice matters for purposes of appellate jurisdiction: an order compelling arbitration and staying the action isn’t immediately appealable, on the other hand, an order compelling arbitration and dismissing the action is. Because the district court chose to dismiss the employee’s action, the Ninth Circuit determined that it had jurisdiction to hear this appeal.

Opt-out provision. When Bloomingdale’s hired the employee, she received a set of documents describing the company’s dispute resolution program. Those documents informed her that she agreed to resolve all employment-related disputes through arbitration unless she returned an enclosed form within 30 days electing “NOT to be covered by the benefits of Arbitration.” The employee did not return the opt-out form to Bloomingdale’s. By not opting out within the 30-day period, she became bound by the terms of the arbitration agreement. Included in the arbitration agreement was a provision that employees who failed to opt out waived their right to pursue employment-related claims on a collective basis in any forum, judicial or arbitral. The only question in dispute was whether this provision was enforceable.

Class action waiver. Relying on the Norris-LaGuardia Act, and the NLRA, the employee argued that federal law rendered the class action waiver unenforceable. Norris-LaGuardia states that, as a matter of public policy, employees “shall be free from the interference, restraint, or coercion of employers of labor, or their agents, in the designation of . . . representatives [of their own choosing] or in self-organization or in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  It declares that any “undertaking or promise in conflict with the public policy declared in section 102 . . . shall not be enforceable in any court of the United States.” The NLRA essentially says the same thing.

The employee asserted that filing this class action on behalf of her fellow employees is one of the “other concerted activities” protected by the Norris-LaGuardia Act and the NLRA. While there is some judicial support for the employee’s position, the Ninth Circuit determined that to prevail, she must still show that Bloomingdale’s interfered with, restrained, or coerced her in the exercise of her right to file a class action. In the appeals court’s view, Bloomingdale’s did none of these things.

Right to file class action. First, the court summarily brushed aside any notion that Bloomingdale’s coerced the employee into waiving her rights to file a class action. The employer did not require her to accept a class action waiver as a condition of employment. Rather, Bloomingdale’s gave the employee the option of participating in its dispute resolution program, which would require her to arbitrate any employment-related disputes on an individual basis.

No interference. Nor was there any basis for concluding that Bloomingdale’s interfered with or restrained the employee in the exercise of her right to file a class action. If she wanted to retain that right, nothing stopped her from opting out of the arbitration agreement. Bloomingdale’s merely offered her a choice: resolve future employment-related disputes in court or resolve such disputes through arbitration. In the absence of any coercion influencing the decision, the Ninth Circuit failed to see how asking employees to choose between those two options can be viewed as interfering with or restraining their right to do anything.

No offer of benefit. The court rejected the employee’s contention that Bloomingdale’s action in offering the arbitration agreement was akin to cases in which an employer offers its employees a benefit in exchange for the employee’s agreement to refrain from protected activity. To prevail on that argument, the employee needed to show that offering the arbitration agreement constituted “conduct immediately favorable to employees,” which Bloomingdale’s undertook with the express purpose of impinging upon its employees’ “freedom of choice” in deciding whether to waive or retain their right to participate in class litigation.

Here, the Ninth Circuit concluded that the offer of the dispute resolution agreement was not of such a character that it would tend to interfere with an employee’s freedom of choice about whether to forego future participation in class actions.

Individual negotiations. Next, the employee argued that an employee may never waive the right to participate in class litigation by negotiating an individual contract with her employer. The Ninth Circuit noted that except for an instance where the employee is covered by a collective bargaining agreement that supersedes any individual agreement, nothing prevented the employee from making an individual contract with her employer. Thus, the court concluded that the employee’s decision to enter into the arbitration agreement did not amount to or result from an unfair labor practice.