Considerations Of The Suitability Of Arbitration To Resolve FLSA Collective Action Litigation

Transcription

1 2010 MIDWINTER MEETING OF THE ADR STANDING COMMITTEE LABOR AND EMPLOYMENT LAW SECTION Considerations Of The Suitability Of Arbitration To Resolve FLSA Collective Action Litigation February 15, 2010 Peter W. Zinober Ashwin R. Trehan GREENBERG TRAURIG, P.A. 625 E. Twiggs Street, Suite 100 Tampa, Florida Telephone: (813) Facsimile: (813)

2 Arbitration is often viewed as a more efficient and inexpensive means than litigation of resolving labor and employment disputes. So why shouldn t an employer seek to arbitrate FLSA collective actions? Actually, there are several reasons why employers should not seek to arbitrate such cases: (1) FLSA collective actions present complex issues that are more appropriate for judicial determination and supervision; (2) there is a reasonable chance that a dispute will arise over arbitrability, meaning that significant resources will be devoted to resolving issues that are preliminary to resolution of the merits of the case; and (3) it is not at all clear that arbitration is in fact less costly than court litigation for this type of case. Accordingly, employers should carefully consider whether to seek to compel arbitration of an FLSA collective action, or whether to carve out such litigation from a mandatory arbitration policy. A. FLSA Collective Actions Present Complex Issues That Are More Appropriate For Judicial Determination One issue with which district courts have struggled is the issue of whether and under what circumstances to certify collective action. As the Supreme Court found in Hoffman-LaRoche Inc. v. Sperling, district courts have discretion, in appropriate cases, to implement the FLSA s collective action mechanism by facilitating notice to potential plaintiffs. 1 The Hoffman Court instructed that this mechanism should be employed only in cases involving common issues of law and fact arising from the same alleged... activity, such that resolution of common issues in one proceeding would promote efficiency and judicial economy. 2 With this pronouncement, the Hoffman Court did not exactly pave a clear path for courts to follow in determining whether collective action treatment is appropriate in an FLSA case. The Eleventh Circuit, for instance, has suggested that district courts use a two-tiered approach to U.S. 165, 169 (1989). at

3 determine whether certification of a collective class is warranted. 3 At the initial stage, plaintiffs must demonstrate that: (1) there are other employees who desire to opt in to the litigation; and (2) these other employees are similarly situated with respect to their job requirements and their pay provisions. 4 In order to make the requisite showings, a plaintiff must offer detailed allegations supported by affidavits which successfully engage defendants affidavits to the contrary. 5 Further, where the party opposing conditional certification presents evidence refuting or undermining the plaintiff s allegations, district courts frequently conduct a more thorough examination of the plaintiff s allegations as part of the conditional certification analysis. 6 In any event, regardless of whether the court utilizes a traditional first-tier analysis or a more rigorous one, the court still must determine whether this case can be appropriately treated as a collective action. As one court put it, neither the remedial purposes of the FLSA, nor the interests of judicial economy, would be advanced if [the court] were to overlook facts which generally suggest that a collective action is improper. 7 3 Hipp v. Liberty Nat l Life Ins. Co., 252 F.3d 1208, 1217 (11th Cir. 2001). 4 Dybach v. State of Fla. Dep t of Corr., 942 F.2d 1562, (11th Cir. 1991). 5 Grayson v. K-Mart Corp., 79 F.3d 1086, 1097 (11 th Cir. 1996). 6 See, e.g. Tyler v. Payless Shoe Source, Inc., 2005 U.S. Dist. LEXIS (M.D. Ala. Nov. 23, 2005) (applying. heightened examination where the parties submitted competing affidavits on the issue of whether the putative class was similarly situated); Holt v. Rite Aid Corp., 333 F. Supp. 2d 1265, 1274 (M.D. Ala. 2004) (it is appropriate to carefully consider the submissions of the parties with respect to the collective action allegations, where the court has been presented with fairly extensive evidence on the issue of whether putative class members are similarly situated ). 7 West v. Border Foods, Inc., 2006 U.S. Dist. LEXIS (D. Minn. July 10, 2006); see also Freeman v. Wal-Mart Stores, Inc., 256 F. Supp. 2d 941, 945 (W.D. Ark. 2003) ( [i]t would be a waste of the Court s and the litigants time and resources to notify a large and diverse class only to later determine that the matter should not proceed as a collective action because the class members are not similarly situated ); Basco v. Wal-Mart Stores, Inc., 2004 U.S. Dist. LEXIS (E.D. La. July 2, 2004) ( [t]o create a collective action class, including the cost associated with that when a Court is convinced that there is insufficient support for same prior to its certification would be an exercise in futility and wasted resources for all parties involved )

4 Among the questions left for courts to ponder: What does similarly situated actually mean? The FLSA does not provide the answer for purposes of conditional certification. Thus, a commonly referenced standard is the three-factor test first articulated in Lusardi v. Xerox Corp., 8 that considers: (1) the extent to which the employment settings of employees are similar or disparate; (2) the extent to which any defenses that an employer might have are common or individuated; and (3) general fairness and procedural considerations. 9 Whether or not a district court applies the above analysis, it is clear that the collective action certification process is both complex and uncertain. Thus, it behooves employers (and employees) to have FLSA collective action issues resolved in a forum that allows for a de novo review in the event that the law was misapplied to the facts. Pursuing an FLSA collective action case in a federal district court provides just such a forum. If either party is dissatisfied with the court s application of the law, that party may appeal to the Circuit Court of Appeals, in which legal questions will be reviewed de novo. The appeal process is not predictable, especially given the uncertain state of the collective action certification process and the lack of clear guidance from the Supreme Court, but it is certainly better than the alternative. If a party believes that an arbitrator has misapplied the law, the standard of review generally is whether the arbitrator acted in manifest disregard of the law. 10 This far more deferential standard of review means that a case is more likely to be decided on the F.R.D. 351, 359 (D.N.J. 1987). 9 See Pendlebury v. Starbucks Coffee Co., 518 F. Supp. 2d 1345, 1349 (S.D. Fla. 2007). 10 See Long John Silver s Restaurants, Inc. v. Cole, 514 F.3d 345, 349 (4th Cir. 2008) (internal citations omitted)

5 basis of a misapplication of the law than if the case proceeded through the courts. It is doubtful that either employers or employees desire such a result. 11 B. Disputes Over Arbitrability Are Common, And Will Delay Resolution Regardless Of Their Outcome An initial and significant hurdle for a party that seeks to arbitrate an FLSA collective action pursuant to an arbitration clause is whether the arbitration clause is even enforceable. For instance, in Hopkins v. New Day Financial, LLC, 12 the court held that plaintiffs, former mortgage account executives, were not required to arbitrate their wage and hour claims, and that a jury was entitled to determine whether the arbitration agreements the plaintiffs signed were procedurally or substantively unconscionable and therefore unenforceable. 13 The court in Hopkins determined that the plaintiffs had little or no meaningful choice regarding whether to accept undesirable provisions in the arbitration agreement, given that (1) they were already employed when they were presented with the agreements and (2) they understood that if they refused to sign, they would be terminated. 14 Moreover, the plaintiffs did not receive a copy of the document upon signing it. 15 In addition to the potentially procedurally unconscionable means by which the agreement was signed, the court also found the agreement potentially substantively unconscionable, as it contained a waiver precluding employees from 11 To the extent that employers attempt to contract for a less deferential standard for judicial review of an arbitrator s decision, the viability of such an approach is in doubt in light of the Supreme Court s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). In Hall Street, the Supreme Court held that the grounds under the Federal Arbitration Act for prompt vacatur and modification of an arbitration award are exclusive, and may not be supplemented by contract. 12 No , Opinion and Order (E.D. Pa. Aug. 14, 2009). 13 at 20, at at

6 opting into an FLSA action or consolidating FLSA claims with other employees. 16 The court concluded that it was not clear whether plaintiffs knowingly assented to this waiver. 17 Thus, employers who attempt to enforce arbitration clauses in existing agreements face a risk of litigation as to whether such clauses are even enforceable. In attempting to arbitrate an FLSA claim on behalf of a class, parties also risk receiving a ruling from an arbitrator that does not comport with the FLSA, yet nonetheless is likely to be upheld on judicial review. In Long John Silver s Restaurants Inc. v. Cole, 18 the Fourth Circuit upheld an arbitrator s decision to allow three former restaurant managers to proceed with an optout class arbitration of their FLSA claims, even though the FLSA permits only opt-in actions. 19 Long John Silver s had argued that because the FLSA authorized only opt-in collective actions, the arbitrator exceeded his authority by permitting an opt-out class arbitration. 20 The Court rejected that argument, however, stating that Long John Silver s failed to convince us that Congress expressly intended that the opt-in procedure could not be waived by the parties agreement to an alternate procedure. 21 In other words, the Court found that the FLSA does not prohibit waiver of the opt-in mechanism if the parties sign an agreement permitting the administration of arbitration under the American Arbitration Association s commercial arbitration rules. 22 The AAA s commercial arbitration rules permit the arbitrator to determine whether the arbitration agreement permits class arbitration and whether class arbitration would Hopkins v. New Day Financial, LLC, No , Opinion and Order at (E.D. Pa. Aug. 14, 2009). 514 F.3d 345 (4th Cir. 2008). at 352. at 351. at 350. See Cole, 514 F.3d at

7 be appropriate. 23 The rules also require the arbitrator to define the class with specificity, including those who have elected to opt out of the class. 24 The arbitrator also found that Long John Silver s pre-trial maneuvering hampered the effectiveness of an opt-in procedure. 25 In reviewing the district court s decision upholding the arbitrator s decision, the Fourth Circuit acknowledged that the Supreme Court has recognized that parties do not lose substantive rights when they agree to arbitrate, but an arbitration agreement is unenforceable if it waives judicial remedies that Congress intended to be nonwaivable. 26 The Court found, however, that no court has found that the FLSA s opt-in mechanism is a substantive, non-waivable right. 27 Therefore, the Court found that the arbitrator was authorized to uphold the arbitration agreement and permit an opt-out FLSA class arbitration. 28 On the other hand, some courts have upheld the employer s right to mandatory, individual arbitration of an employee s FLSA claim despite the employee s efforts to certify a class in federal court. In Pomposi v. GameStop Inc., 29 defendant GameStop Inc. moved to dismiss and compel arbitration under the Federal Arbitration Act of the FLSA collective action brought by Justin Pomposi, a former GameStop store manager. Pomposi previously had agreed to an arbitration agreement that prohibited collective and class actions. 30 The Court ruled that AAA Supplementary Rules for Class Arbitrations, Rule 3. AAA Supplementary Rules for Class Arbitrations, Rule 7. Cole, 514 F.3d at 352. at 350. at 352. No (D. Conn. Jan. 11, 2010). at

8 such a prohibition was not an unenforceable waiver of Pomposi s rights under the FLSA, and granted the motion to dismiss and compel arbitration. 31 While he was employed by GameStop, Pomposi signed an agreement that provided that all workplace claims or disputes would be resolved according to the alternative dispute resolution procedures set forth in the agreement, rather than by litigation. 32 The agreement also stated, in capital letters, that no claim covered by the agreement could be brought as either a class or a collective action either in arbitration or through litigation. 33 The rules defined covered claims to include those brought under state or federal wage and hour laws. 34 Pomposi was terminated in August 2008, and in March 2009 he filed a collective action claiming GameStop had improperly classified him and other store managers as exempt. 35 Pomposi also challenged the validity of the arbitration agreement, arguing that it was as an unenforceable waiver of his statutory right to pursue a remedy via a class or collective action. 36 In support of this argument, Pomposi cited In Re American Express Merchants Litigation. 37 In American Express, which was an antitrust case, the Second Circuit Court of Appeals found that a class action waiver in an employment agreement was unenforceable in that action because each individual plaintiff potentially could incur millions of dollars in unrecoverable fees. 38 In Pomposi, the Connecticut District Court distinguished American Express, however, noting Pomposi's fairly straightforward wage and hour claims would not require significant, at at 5. Pomposi, No at 5. at 6. Pomposi also claimed wage and hour violations under Connecticut laws. at In re Am. Express Merch. Litig., 554 F.3d 300 (2d Cir. 2009). at

9 unrecoverable expenditures for expert testimony or analysis. 39 The court also noted that the FLSA allows the prevailing party to recover reasonable attorneys' fees and costs. 40 Thus, the Court found that Pomposi had failed to show under the test in American Express that the disparity between litigation costs and the potential recovery was so great as to grant GameStop de facto immunity from FLSA liability by discouraging or preventing plaintiffs from bringing their claims on an individual basis. 41 The Court did note that it was not ruling that all such FLSA collective action waivers were enforceable, but rather that under its reasoning in American Express, courts must consider the facts and circumstances of each particular case. 42 Despite GameStop s successful effort to compel arbitration in Pomposi, other uncertainties remain with respect to arbitration of FLSA collective actions. One issue that affects numerous employees and employers is whether a class claim may be arbitrated when the arbitration provision in the parties contract is silent on the issue. The U.S. Supreme Court will address this issue when it decides Stolt-Nielsen v. AnimalFeeds Int'l Corp. 43 Although Stolt-Nielsen is a federal antitrust case, the Court s ruling will be of interest to employment lawyers because the issue before the Court is integral to employment law. The Supreme Court s ruling in the case likely will apply to arbitration agreements that are sought to be enforced where an employee pursues an FLSA claim. 39 Pomposi, No at at 16 n. 4. Other arguments made by Pomposi that were rejected were that the difference in bargaining power between the parties rendered the agreement an unenforceable contract of adhesion, and that the agreement's terms were unconscionably hidden or deceptive. at The Court found that Pomposi had shown no evidence that he was coerced or that he lacked the capacity to understand the agreement he was signing, and that it was difficult to conceive of more clear and conspicuous language than that describing the waiver. 43 Stolt-Nielsen SA v. AnimalFeeds Int l Corp., 548 F.3d 85 (2d Cir. 2008), cert. granted, 77 U.S.L.W (U.S. Jun. 15, 2009) (No )

10 In November, 2008, the Second Circuit Court of Appeals ruled that an arbitration panel did not act in manifest disregard of the law when it found that arbitration provisions in international maritime contracts for parcel tanker shipping services allow class arbitration. 44 AnimalFeeds International Inc. contracted with the defendant Stolt-Nielsen SA, Stolt- Nielsen Transportation Group Ltd, Odfjell ASA, Odfjell Seachem AS, Odfjell USA, Inc., Jo Tankers BV, Jo Tankers, Inc., and Tokyo Marine Co. Ltd.(collectively, the "shipping firms ) and alleges that the shipping firms conspired to restrain competition in the world market for parcel tanker shipping services in violation of federal antitrust law. 45 AnimalFeeds sued, but the Second Circuit held in a related case that the antitrust claims are covered by the arbitration provisions, which call for arbitration in New York. AnimalFeeds then began arbitration, where they sought to arbitrate on behalf of a class of direct purchasers of parcel tanker transportation services. 46 The shipping firms argued at arbitration that AnimalFeeds was not entitled to proceed on behalf of a class because he arbitration provisions in the standard shipping contract do not expressly address the issue. 47 Nevertheless, an arbitration panel concluded that the arbitration provisions permit class arbitration. 48 Pursuant to Section 10 of the Federal Arbitration Act, 49 the shipping firms then sought vacatur of the award in the U.S. District Court for the Southern District of New York. 50 The at 87. at 88 (citing JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 183 (2d Cir. 2004). Stolt-Nielsen SA, 548 F.3d at U.S.C. 10. at 90; Stolt-Nielsen SA v. Animalfeeds Int l Corp., 435 F. Supp. 2d 382 (S.D.N.Y. 2006)

11 District Court vacated the arbitration ruling, finding that the arbitration panel acted in manifest disregard of the law. 51 On appeal, the Second Circuit reversed, placing initial and significant emphasis on the standard that arbitration decisions are entitled to great deference. 52 The Second Circuit stated that while some circuit court rulings prohibit class arbitration unless it is expressly authorized in the arbitration agreement, those rulings do not establish law that is so clearly and plainly applicable that we are compelled to conclude that the arbitration panel willfully ignored it, thereby manifestly disregarding the law. 53 The shipping companies appealed, arguing that the Second Circuit's decision in this case conflicts with core FAA principles recognized in prior Supreme Court decisions, which demonstrate that involuntary class arbitration is fundamentally inconsistent with the FAA's emphasis on enforcing parties' agreements as written. 54 The shipping firms emphasize that they never consented to class arbitration and that consent cannot be inferred simply from a party's agreement to a general arbitration clause that is silent on the issue. 55 The question before the Supreme Court in Stolt-Nielsen is Whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the Federal Arbitration Act, 9 U.S.C. 1 et seq. 56 The shipping firms contend that the arbitrator s decision to impose class arbitration conflicts with the Federal Arbitration Act. 57 Specifically, the shipping companies argue that ) Stolt-Nielsen SA, 435 F. Supp. 2d at 387. Stolt-Nielsen SA, 548 F.3d at at 99. Brief of Petitioner at 17, Stolt-Nielsen SA v. AnimalFeeds Int l Corp., No (U.S. argued Dec. 9, Brief of Petitioner, supra note 54 at 18. Brief of Petitioner, supra note 54 at (i)

12 class arbitration operates on an entirely different scale than individual arbitration. 58 Moreover, such proceedings inevitably deprive the parties of what would normally be their core right to select particular arbitrators to hear and decide particular, individual disputes. 59 In addition, the shipping firms assert that class arbitration raises several potentially complex and costly substantive and procedural issues unique to the class setting and dramatically alters the monetary stakes for the defending parties. 60 To quote the shipping firms brief: A party that was willing to accept the informal procedures, private decisionmakers, often limited decisional explanations, and extremely limited judicial review in exchange for the speed, finality, privacy, and other advantages of arbitrating individual disputes might well not be willing to make anything like the same trade-off when confronted with the prospect of unified adjudication of hundreds or thousands of claims involving millions of dollars in potential liability. 61 In its brief, AnimalFeeds emphasizes the deference due to arbitrators rulings. 62 By agreeing to an arbitration provision, AnimalFeeds argues, the shipping firms gave up their right to judicial review of every interpretation by the arbitrators. 63 AnimalFeeds argues that if the firms had wanted to exclude any of the perceived risks associated with class arbitration, they could have negotiated that procedure right out of the arbitration agreements. 64 AnimalFeeds ) Brief of Petitioner, supra note 54 at 17. Brief of Petitioner, supra note 54 at 18. Brief of Petitioner, supra note 54 at 18. Brief of Petitioner, supra note 54 at 19. Brief of Petitioner, supra note 54 at 19. Brief of Respondent 7-10, Stolt-Nielsen SA v. AnimalFeeds Int l Corp., No (U.S. argued Dec. 9, See Brief of Respondent, supra note 62 at 21. Brief of Respondent, supra note 62 at

13 also asserts that American Arbitration Association amply provides rules for class arbitration, eliminating [the shipping firms ] concerns. 65 AnimalFeeds further argues that the Supreme Court does not have jurisdiction because the arbitration panel's interlocutory clause construction decision is not ripe for judicial review. 66 AnimalFeeds argues that only after the arbitrator certifies a class or rules on the merits of the dispute will the shipping firms be entitled to seek judicial review under the Federal Arbitration Act. 67 AnimalFeeds also argues that an arbitration decision resolving a preliminary procedural matter is not a final award subject to judicial review under Section 10 of the FAA. 68 Suffice it to say that even if the shipping companies efforts to have the arbitrator s decision overturned are successful, the costs to the parties of litigating the issue of arbitrability of a class claim have negated some of the costs savings that the parties likely hoped to achieve through the agreement to arbitrate. The Supreme Court heard oral argument in Stolt-Nielsen on December 9, 2009, and a ruling is expected soon. In all likelihood, if the Supreme Court upholds the challenged ruling from the Second Circuit, employers will expressly prohibit class arbitration in future employment agreements. Whether such a prospective waiver of the right to proceed collectively is permissible under the FLSA remains to be decided by the Supreme Court, however. Thus, uncertainties regarding the arbitrability of FLSA collective action cases should continue for the foreseeable future Brief of Respondent, supra note 62 at 21. Brief of Respondent, supra note 62 at 23. Brief of Respondent, supra note 62 at 25. Brief of Respondent, supra note 62 at

14 C. Arbitration Of Collective Actions Will Be No Less Expensive Than Judicial Litigation Assuming an FLSA claim is arbitrated, however, and the parties do not dispute its arbitrability, is arbitration actually more cost-effective than litigation? Recent studies suggest that arbitration is not necessarily any less expensive than litigation. A 2008 survey 69 of senior corporate counsel in the United States found that 23% of the largest companies 70 spent an average of between $50,000 and $100,000 arbitrating each employment dispute. 71 And 19% of those companies spent $100,000 or more per dispute. 72 The costs of arbitrating a collective action arbitration, moreover, surely would increase significantly over the cost of arbitrating an individual employment dispute. One factor contributing to the surprising similarity in the expenses of arbitration when compared to judicial litigation may be that arbitrators are less likely than courts to grant dispositive motions. Although there does not appear to be a definitive study on the issue, a recent article from the New York Law Journal concluded that arbitrators are less prone than courts to grant dispositive motions. 73 If that conclusion is confirmed by future studies, it would provide some explanation as to the narrowing gap between the cost of arbitration and the cost of litigation. An arbitrator s refusal to decide dispositive motions will prolong the resolution of an FLSA collective action, particularly if the case could have been decided prior to certification of 69 Fulbright & Jaworski, LLP, 2008 Litigation Trends Survey, available at 70 Companies with $1 billion or more per year in gross revenue Litigation Trends Survey at Michael D. Young and Brian Lehman, Arbitrators Less Prone to Grant Dispositive Motions Than Courts, NEW YORK LAW JOURNAL (Jun. 26, 2009), available at

15 the class. An approach that has been employed in the Eleventh Circuit, which an arbitrator who does not consider dispositive motions would not employ, illustrates how arbitration may prolong the resolution of FLSA collective actions. The Eleventh Circuit has repeatedly recognized that trial courts may consider potentially dispositive motions prior to considering motions for class certification. 74 The rationale of these decisions has been applied to FLSA cases in which a court determines, on summary judgment, that the named plaintiff was an exempt employee: [The named Plaintiffs] cannot demonstrate that [they] and any other potential plaintiffs in this matter were the victim of a common policy or plan that violated the law if [the named Plaintiffs were] exempt from the FLSA overtime requirements.... Thus, the Court [should] resolve this issue before [addressing] conditional certification of a class. If [the named Plaintiffs] w[ere] exempt from the FLSA overtime requirements, then... the Court cannot find that [they] and the potential plaintiffs, were victims of a common policy or plan that violated the law or that [they are] similarly situated to other current and former [employees] within the meaning of 29 U.S.C. 216(b). 75 The Eleventh Circuit has implicitly approved deferral of a ruling on conditional certification for more than a year, to permit the parties in an FLSA case to take discovery and file 74 See, e.g., Wooden v. Board of Regents of the Univ. System of Georgia, 247 F.3d 1262, 1289 (11th Cir. 2001) (On remand, the district court is not required to resolve [plaintiff s] class certification request before resolving a challenge to [his] individual claim. If the district court were to resolve a summary judgment motion in Defendants favor and in so doing dismiss [plaintiff s] individual claim before ruling on class certification, then [plaintiff] would not be an appropriate class representative. ); Rink v. Cheminova, Inc., 400 F.3d 1286, 1297 (11th Cir. 2005) ( Because we have found that summary judgment was properly granted as to the underlying claims of the class representatives, the issue of class certification is moot. ) (citation omitted); Telfair v. First Union Mort. Corp., 216 F.3d 1333, 1343 (11th Cir. 2000) ( After determining that none of [the named plaintiff s] underlying claims had merit, the bankruptcy court came to the ineluctable conclusion that there were not claims to certify as a class action lawsuit. It was within the court s discretion to consider the merits of the claims before their amenability to class certification. With no meritorious claims, certification of those claims as a class action is moot. Because we agree with the bankruptcy and district courts disposition of the merits of [the named plaintiff s] claims, we also affirm the denial of the motion for class certification. ) (footnotes and citations omitted). See also Annotated Manual for Complex Litigation (4th ed. 2008) ( Most courts agree... that... precertification rulings on threshold dispositive motions are proper, and one study found a substantial rate of precertification rulings on motions to dismiss or for summary judgment. ). 75 O Neal v. Kilbourne Medical Labs., Inc., 2007 WL at *7 (E.D. Ky. Mar. 28, 2007) (entering summary judgment for employer on the issue of exempt status, and denying plaintiff s motion for conditional class certification) (emphasis in original) (citing Olivo v. GMAC Mort. Corp., 374 F. Supp. 2d 545 (E.D. Mich. 2004) (denying motion for conditional certification because of named plaintiffs exempt status))

16 motions on a potentially dispositive preliminary issue. In Martinez-Mendoza v. Champion Intern. Corp., the plaintiffs brought an FLSA class action against Champion. 76 Plaintiffs were directly employed by F & K Enterprises, and sued Champion on the theory that Champion was a joint employer. 77 The trial court issued a scheduling order that gave the parties more than a year to file motions for summary judgment on the joint employer issue, and postponed consideration of class certification until after the court decided the joint employer issue. 78 The trial court eventually entered summary judgment for Champion more than two years after the lawsuit had been filed, without first addressing conditional class certification. 79 The Eleventh Circuit affirmed the entry of summary judgment for Champion. 80 An arbitrator who declines to consider dispositive motions, however, will not consider such potentially dispositive issues prior to ruling on class certification. Accordingly, in situations akin to the Martinez-Mendoza case, proceeding before such an arbitrator would be far less efficient than proceeding in court. Moreover, as discussed above, employers may rightfully be wary of submitting a complex FLSA claim to an arbitrator who may not be familiar with the FLSA and does not have law clerks available in the event that the case involves esoteric issues that require research. As described in Section A above, the federal courts themselves have plenty of difficulty with these issues. And even if the arbitrator can master the issues through research, the time required for an arbitrator who is paid by the hour to conduct that research will increase the cost of the arbitration F.3d 1200 (11th Cir. 2003). at at at

17 Another factor that increases the costs of arbitration is that arbitrators frequently do not feel constrained by state or federal rules of civil procedure or precedent that may limit discovery. On the contrary, in the authors experience, arbitrators have routinely permitted broad discovery that a court might otherwise have limited, either by rule or by case precedent. Similarly, judges and arbitrators tend to approach evidentiary issues differently. Judges apply the rules of evidence to exclude irrelevant, immaterial, cumulative and hearsay evidence. On the other hand, the rules of evidence generally are relaxed in an arbitration. For instance, the American Arbitration Association s commercial arbitration rules state: Conformity to legal rules of evidence shall not be necessary. 81 As noted by practitioners Steven E. Bizar and Paul D. Weiner in a 2003 National Law Journal article, arbitrators relaxation of evidentiary rules, and the limited right of appeal of their rulings, have resulted in a common practice for arbitrators to permit the presentation of evidence that a judge likely would have excluded from consideration. 82 Moreover, as noted in the same article, the everything-comes-in approach can be inefficient, especially in the expert context, where the courts often exercise a gatekeeping function before expert testimony can be heard. 83 Finally, many courts have developed case management techniques to manage wage and hour litigation. As a means of managing their FLSA caseloads, courts in the Middle District of Florida frequently submit both an FLSA-tailored scheduling order and court-ordered interrogatories to the parties at the beginning of an FLSA case. Such proactive methods provide the parties with predictability as to how such actions will be managed. Individual arbitrators, on (Nov. 17, 2003). 83 AAA Commercial Arbitration Rule R-31. Steven E. Bizar and Paul D. Weiner, Arbitration is Not Always Quick, 26 NATIONAL LAW JOURNAL

18 the other hand, are far less likely to have developed such case management techniques, and are more likely to take a reactive approach. D. The Future Of Arbitration Of FLSA Collective Actions Despite the current uncertainty in FLSA case law (or perhaps because of it), if legislation currently in committee at the U.S. House and Senate levels is enacted into law, the arbitrability of FLSA claims will not be in doubt instead, it will be prohibited by federal law. The Arbitration Fairness Act of 2009 (the AFA ), 84 if passed, would radically alter the landscape for employers and employees under the FLSA and beyond. The Senate version 85 of the AFA notes that a series of Supreme Court decisions have altered the meaning of the Federal Arbitration Act, which was supposed to apply to disputes between commercial entities of similar sophistication and bargaining power, so that it extends to parties of greatly disparate economic power. The bill further notes that [a]s a result, a large and rapidly growing number of corporations are forcing millions of consumers and employees to give up their right to have disputes resolved by a judge or jury, and instead submit their claims to binding arbitration[.] Accordingly, the AFA would create an outright prohibition on pre-dispute arbitration agreements in the employment, financial and commercial areas. FLSA disputes would then proceed in the courts, which despite the likely objection of many employers, may ultimately be the most efficient outcome. CONCLUSION When deciding whether arbitration is an appropriate forum for wage and hour claims, parties and their counsel have many factors to consider. Such disputes often involve complex S. 931, 111 th Cong. (2009); H.R. 1020, 111 th Cong. (2009). S

19 issues with which courts have more experience and more resources from which to draw; threshold issues of arbitrability are likely to be contentious; and cost savings may not be as significant as the parties had hoped. Accordingly, unless and until legislation is passed that prohibits the use of arbitration in wage and hour disputes, employers and their counsel should carefully consider whether arbitration is the appropriate forum to resolve such disputes