Arbitration kills off class action in FLSA overtime case

In June 2013, the Supreme Court handed down a ruling that limited when plaintiffs may bypass arbitration agreements in bringing class action lawsuits. That ruling overturned a Second Circuit decision. That ruling also puts the kabosh on another proposed class action brought under the Fair Labor Standards Act.

The case is Southerland v. Ernst & Young, LLP, decided on August 9. Southerland is the lead plaintiff in this class action that alleges that Ernst & Young denied its employees overtime pay under the FLSA. She calculates that her former employer shafted her out of 151.5 hours of overtime, amounting to $1,867.02 in lost overtime pay. Southerland would also sue on behalf of others who were also denied overtime pay. But when she began working there, Southerland signed an agreement that said that disputes like this will be resolved at arbitration. The agreement also says that these disputes "pertaining to different employees will be heard in separate proceedings." In other words, no class actions in arbitration.

Nothwithstanding the arbitration agreement, the district court cited In Re American Express Merchants' Litigation, 554 F.3d 300 (2d Cir. 2009) in holding that Southerland could bring this proposed class action in federal court. The rationale is that where it doesn't pay for the individual plaintiff to bring a suit like this, then the arbitration agreement's prohibition against class actions is not enforceable. Also, enforcing the arbitration agreement would deprive the plaintiffs of their substantive rights under federal law. Great news for Southerland.

But in June 2013, the Supreme Court overturned the American Express case, 133 S.Ct. 2304 (2013), and said that it does not matter if the individual arbitration is cost-prohibitive. If the arbitration agreement that the employee signed says that the labor dispute goes to arbitration, then it goes to arbitration. Bad news for Southerland. That ruling compels the Second Circuit (Winter, Cabranes and Straub) to reverse the district court in this case and hold that Southerland cannot bring this class action.

Southerland has a relatively small claim, seeking less than $1,900 in damages. Many lawyers would not take the case. The lawsuit would not be worth it unless the case is a class action on behalf of many other employees. This means that her rights may go unenforced. But the Supreme Court rejected that argument in June 2013, stating that "the fact that it is not worth the expense involving in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy."