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Federal Court Reluctantly Enforces Class Action Waiver, Barring FLSA Collective Action

In 2013, the pendulum swung in favor of employers seeking to enforce class action waivers in arbitration agreements. A recent case well illustrates this. In Walton v. The Rose Group, a Pennsylvania federal court compelled an FLSA plaintiff to individually arbitrate his claim against his employer, despite calling the result “unappetizing.”

The plaintiff worked as a server at a Pennsylvania Applebee’s restaurant. He brought a putative collective action against his employer alleging violations of the FLSA and the Pennsylvania Minimum Wage Act. He alleged that the employer required “tipped employees” (like bartenders, hosts and servers) to spend hours each day performing “non-tipped” side work (like cleaning, dusting, sweeping, and vacuuming), for which the employer paid them less than the minimum wage.

The employer moved to stay the litigation and to compel the employee to arbitrate his claims on an individual basis. At issue was the enforceability of an arbitration agreement that the employee signed when he began his employment. The employee argued that the agreement was procedurally and substantively unconscionable and therefore could not be enforced against him.

The Court agreed with the employee on the first point. It held that the plaintiff “established that the agreement [was] procedurally unconscionable” because it “was presented . . . as a take it or leave it proposal,” “the parties were not on equal footing,” and the plaintiff was “economically compelled to accept Defendant’s terms.”

Binding precedent, however, prevented the Court from finding the agreement to be substantively unconscionable. The Court found persuasive plaintiff’s argument that enforcing the class action waiver effectively prevented him from vindicating his FLSA rights. But—citing the U.S. Supreme Court’s recent decision in American Express Co v. Italian Colors Restaurantthe Court observed that the “plea . . . that it would be cost prohibitive to arbitrate [claims] on an individual basis” had now been rejected. Thus, it held, the arbitration agreement was not substantively unconscionable.

In reaching this conclusion, the Court—echoing Justice Kagan’s dissent in Italian Colors—commented as follows:

“This current state of legal affairs is lamentable. Workers of Applebee’s, as part of their desire to work, signed away their rights to bring a multitude of claims in court. Employers such as Applebee’s hold all of the cards here; Applebee’s can easily inform prospective applicants that if they do not like the terms of the deal, the applicants can just try to work in a different neighborhood. Its workers must therefore chew on a distasteful dilemma—give up certain rights or give up the job. These agreements are not more palatable because Applebee’s arbitration agreement includes form language that the employee has had the opportunity to read the agreement and seek legal counsel prior to signing it. This is, of course, fantasy. How many waiters and waitresses, newly hired by Applebee’s, when presented with the dispute resolution program, seek legal advice about their options? The Court will hazard a guess that the number is very few . . .

The increasing frequency with which these arbitration clauses and class action waivers are employed is unfortunate, and in many situations, unjust. There is a reason that arbitration is the favored venue of many businesses for deciding employment disputes, and it is not to ensure that employees are afforded the best chance to have their claims adjudicated by a judge or jury picked from the community. This Court, however, is not at liberty to ignore the decisions of the United States Supreme Court and the Third Circuit Court of Appeals. Applebee’s and the Plaintiffs have a valid arbitration agreement that is not substantively unconscionable and therefore must be enforced.”

When you have a court lamenting its own decision, it tells you how far the pendulum has swung in favor of employers. Although employees will likely continue to challenge class action waivers on unconscionability grounds, it is now well-established that they cannot do so based on their supposed inability to cost effectively pursue their claims—regardless of how “unappetizing” the result.

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