Second Circuit Holds FLSA Claims Subject to Class Action Waiver in Arbitration

An employee entered into an arbitration agreement with her employer when she was hired. The arbitration agreement required the employee to arbitrate any claims arising out of the Fair Labor Standards Act ("FLSA") as opposed to suing in court and required the employee to individually arbitrate FLSA claims instead of arbitrating as part of a class of employees. Despite those provisions in the arbitration agreement, the employee filed a lawsuit in federal court alleging that she was denied overtime pay in violation of the FLSA on behalf of herself and a class of other similarly-situated employees. The employer sought to compel arbitration and to dismiss the employee's claim due to the class-action wavier provision in the arbitration agreement. The employee asserted that the provision was unenforceable based on the "effective vindication" doctrine, which allows a court to invalidate agreements "that prevent the 'effective vindication' of a federal statutory right. Specifically, the employee asserted that the costs and fees associated with arbitrating her claim individually, rather than collectively, would dwarf her potential damages under the FLSA. The district court denied the employer's motion and found the arbitration agreement to be unenforceable. 

The U.S. Court of Appeals for the Second Circuit rejected the employee's argument based on the United States Supreme Court's recent decision in American Express Co. v. Italian Colors Restaurant, which held that plaintiffs could not invalidate a waiver of class arbitration by relying on a similar "effective vindication" argument. The U.S. Supreme Court held that a class action waiver will not be invalidated based on the fact that plaintiffs have no economic incentive to pursue their claims individually because "the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy." Accordingly, the Second Circuit, relying on the Supreme Court's decision, held that the individual arbitration provision in the arbitration agreement between the employer and employee was not invalid.