The Sutherland v. Ernst & Young case raised a now familiar question and the Second Circuit gave an answer in keeping up with recent U.S. Supreme Court precedent.  The question was whether an employee could invalidate a class action waiver in an arbitration agreement if the “waiver removes the financial incentive . . . to pursue a claim under the Fair Labor Standards Act . . . (“FLSA”).”  The Second Circuit responded “in the negative”, clarifying a number of related issues along the way.


Stephanie Sutherland, a former Ernst & Young (“E&Y”) employee, filed a putative class action against the company under the FLSA and New York law.  She claimed that lower-level audit employees did not receive additional compensation for working more than 40 hours per week.

E&Y filed a motion to dismiss or stay the proceedings, and to compel arbitration in accordance with the Federal Arbitration Act (“FAA”).  Ultimately, District Judge Kimba Wood, denied E&Y’s motion because the class action waiver provision was not enforceable under the Second Circuit’s 2009 decision in In re American Express Merchant’s Litigation (“AMEX I”).  The AMEX litigation was discussed extensively here in a March 5, 2013 blog article.  Judge Wood found that “[e]nforcement of the class waiver provision . . . would effectively ban all proceedings by Sutherland against E&Y [because of her] low-value, high cost claim.”

On March 31, 2011 E&Y moved for reconsideration based on AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).  Judge Wood denied that motion on January 17, 2012, finding that, unlike the plaintiffs in Concepcion, Sutherland was “not able to vindicate her rights absent a collective action” 847 F. Supp. 2d 528, 535 (S.D.N.Y. 2012).

The Second Circuit Appeal

Apparently recognizing the significance of the issues in the appeal, the Equal Employment Opportunity Commission and the Department of Labor filed an amicus brief supporting Sutherland in the Second Circuit.  My March 18, 2013 blog article describes the arguments raised in briefing before the Court.

No “Contrary Congressional Command” in the FLSA

In its August 9, 2013 opinion, the Second Circuit considered, as a threshold matter, if the FLSA contained a “contrary congressional command” foreclosing waiver of class proceedings.  The court noted that every Court of Appeals to address the issue has decided that the FLSA does not prevent the waiver of collective action claims.  And the Second Circuit agreed for two reasons. First, the text of the FLSA did not demonstrate the intent to foreclose a waiver of class proceedings.  The court found the Act’s requirement that an employee must opt-in to a collective action key to the analysis.  It agreed with the Eighth Circuit in Owen v. Bristol Care, Inc., 702 F.3d 1050, 1052-53 (2013), which stated: “ . . . if an employee must affirmatively optin to any such class action, surely the employee has the power to waive participation in a class action as well.”  This conclusion was bolstered by the Court’s own decision in Shahriar v. Smith & Wollenskey Rest. Grp., Inc., 659 F.3d 234, 244 (2d Cir. 2011) which referred to the FLSA collective action as a “procedural mechanism”.

Second, recent Supreme Court opinion logically compelled the conclusion that waiver of FLSA collective action claims is permitted.  Indeed, Concepcion found the FAA preempted a California judicial rule regarding the unconscionability of class action waivers for the reason that requiring the option of class arbitration would be “contrary to the fundamental attributes of arbitration” and create a procedure “inconsistent with the FAA.”  And, in Gilmer v. Interstate/JohnsonLane Corp., 500 U.S. 20 (1991) the Supreme Court upheld the waiver of a collective action provision in the Age Discrimination in Employment Act (“ADEA”).  The Gilmer court commented, that “the fact that the [ADEA] provides for the possibility of bringing a collective action does not mean that individual attempts at conciliation were intended to be barred.”

The Second Circuit also declined to follow the National Labor Relations Board’s (“NLRB”) controversial decision in D.R. Horton, 357 NLRB No. 84 (January 3, 2012), as has the Eighth Circuit in its Owen decision.  The Sutherland opinion concluded that no deference was due the D.R. Horton ruling and also noted that the NLRB may have lacked a proper quorum when it issued the decision.

Sutherland Can Effectively Vindicate Her Rights Through Individual Arbitration

Finally, the Court dealt with Sutherland’s argument that pursuing individual arbitration would be “prohibitively expensive”.  Based on the Supreme Court’s AMEX opinion, the court concluded that the fact Sutherland’s claim is “not economically worth pursuing individually” did not invalidate her class action waiver.  While under AMEX the “effective vindication doctrine” could invalidate an arbitration agreement foreclosing assertion of certain statutory rights, “the fact that it is not worth the expense involved in proving a statutory remedy” is insufficient.

The Bottom Line:  The Supreme Court’s AMEX decision essentially put the nail in the coffin of this appeal.  In reversing the District Court, the Second Circuit also joined the Eighth in rejecting the NLRB’s D.R. Horton decision.