Seyfarth Synopsis: Businesses with arbitration programs often oppose the issuance of notice in FLSA collective actions on the ground that many potential recipients have binding arbitration agreements precluding them from participating in a case. The majority of federal appellate courts have not yet addressed whether arbitration must be addressed before or after notice issues. The Sixth Circuit recently joined the Fifth and Seventh Circuits in requiring the question to be addressed pre-notice. Unlike the Fifth and Seventh Circuits, it went a step further and placed the burden of showing arbitration-related similarity squarely on plaintiffs.
In Hoffman-La Roche v. Sperling, the Supreme Court held that district courts have authority, in appropriate cases, to facilitate notice of an FLSA collective action to similarly situated potential plaintiffs. The Supreme Court made clear, however, that the notice process should not function as a claim solicitation tool. In the over thirty years since Hoffman-La Roche, there has been limited appellate-level guidance on when notice should issue, leading a number of district courts to uncritically grant conditional certification, authorize expansive notice, and reserve consideration of facts bearing on similarity until a later stage. This rubber-stamping has led to the exact result the Supreme Court intended to avoid: the broad solicitation of plaintiffs who have little to no chance of achieving a resolution in a single proceeding, but who by virtue of their numbers alone, place increased settlement pressure on the employer.
More recently, circuit courts have begun reconsidering the level of rigor that a district court should apply before authorizing the issuance of notice. As we detailed here, the Sixth Circuit, in Clark v. A&L Homecare and Training Center, LLC, has now joined the Fifth Circuit in rejecting the previously prevalent, seemingly foregone conclusion that early collective certification may be granted under a “lenient” standard. But Clark is significant for another reason: its discussion of the interplay between arbitration and notice. Although the Sixth Circuit—like the Fifth and Seventh Circuits before it—determined that the application of arbitration agreements to the putative collective must be addressed before notice issues, it held that the burden on that question rests with the plaintiff alone.
JPMorgan and Bigger
In 2019, the Fifth Circuit’s decision in In re JPMorgan Chase & Co. marked the first appellate-level decision addressing whether a court should authorize the issuance of FLSA notice to individuals with binding arbitration agreements. In concluding that they should not, the Fifth Circuit, relying on Hoffman-La Roche, observed that a court’s role in an FLSA action is to facilitate notice to “potential plaintiffs” for the “efficient resolution in one proceeding of common issues.” Issuing notice to individuals with arbitration agreements, however, does precisely the opposite. Indeed, as the Fifth Circuit observed, it ultimately informs individuals who cannot participate in the collective action of a potential right to participate in a wholly separate proceeding—i.e., a potential arbitration—and thus “merely stirs up litigation.” Although it determined that arbitration should be addressed before the issuance of notice, the JPMorgan court placed the burden on the employer to show, by a preponderance of the evidence, the existence of valid arbitration agreements for the individuals sought to be excluded from the collective.
Almost a year after JPMorgan, the Seventh Circuit faced the same question in Bigger v. Facebook, Inc. Much as the Fifth Circuit had done, the Seventh Circuit began by noting that the unmanaged use of collective actions “present[s] dangers.” Chief among them is the possibility that the collective-action device could be abused by plaintiffs to increase settlement leverage by simply increasing the pool of plaintiffs. Given that reality, the Bigger court concluded that a court could not authorize notice to individuals for whom a court has been presented evidence of a binding arbitration agreement.
Citing to JPMorgan, the Bigger court held that, when an employer contends that proposed notice recipients entered into arbitration agreements, a court must first determine whether the plaintiffs contest the employer’s assertion that valid agreements exist. If no challenge is made, according to the Seventh Circuit, a court could not authorize notice to the individuals the employer contends have agreements. If, however, the plaintiff contests the employer’s assertions, the court must permit the presentation of additional evidence, with the employer bearing the burden of showing—by a preponderance of the evidence—that each individual it seeks to have excluded has a valid arbitration agreement.
The Sixth Circuit Weighs In
In Clark, the Sixth Circuit became the third federal appellate court to address the interplay between arbitration agreements and FLSA notice. At the outset of its analysis, the Sixth Circuit observed that any analysis of arbitration across a putative collective may impact a host of potential individualized issues, including consent, consideration, fraud, duress, mistake, and unconscionability. The Sixth Circuit, therefore, rejected the analytical standards outlined by JPMorgan and Bigger, noting the impracticability of conclusively resolving such issues for absent individuals on limited evidence.
At the same time, the Sixth Circuit expressly rejected the argument that arbitration should not be resolved before notice is authorized because it is a “merits” issue. Indeed, the court observed, “nearly every defense concerns the claim’s merits,” and the purpose of the similarly situated analysis is to determine whether the merits of the putative collective’s claims are similar to the merits of the plaintiff’s claims.
Thus, after rejecting JPMorgan and Bigger, the Sixth Circuit noted that arbitration, like any other defense, must be assessed by a district court as part of the determination of whether employees are similarly situated. And because the burden of showing similarity rests with the plaintiff, the Sixth Circuit held—unlike the Fifth and Seventh Circuits—that the burden of showing similarity as to presenting evidence on arbitration also rests with the plaintiff (not the employer).
What Does This Mean?
Alongside JPMorgan and Bigger, Clark is another arrow—and an even deadlier one—in the quiver of employers utilizing arbitration programs. Each of these decisions make clear that—contrary to the common refrain of the plaintiffs’ bar—arbitration is not a merits consideration that courts should reserve until after notice issues. And each confirms—as Hoffman-La Roche previously made clear—that any use of the collective action procedure as a claim solicitation tool should be viewed with skepticism. Three appellate courts have now held that arbitration must be addressed before notice may issue, and none have held otherwise. As a growing chorus of caselaw makes clear that certification not only should, but must, be more than a rubber stamp, Clark offers a powerful tool for employers with arbitration programs to oppose rushed motions for collective certification.