gavel.jpgBy Jennifer Riley and David Ross

Many thought that the U.S. Supreme Court’s recent decisions in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), and CompuCredit Corp. v. Greenwood, 132 S.Ct. 665 (2012), had firmly established that private arbitration agreements with class action waivers were enforceable under the Federal Arbitration Act (“FAA”). However, the National Labor Relations Board and several courts – particularly in the Second Circuit – have interpreted such cases narrowly to avoid that result. The future enforceability of these waivers, and private arbitration of employment disputes overall, remains uncertain in the workplace class action context as these cases advance on appeal.

The Second Circuit’s recent ruling in In Re American Express Merchants’ Litigation, — F.3d —, 2012 WL 1918412 (2d. Cir. May 29, 2012), exposed the differing opinions of the judges in that Circuit, just as three controversial and conflicting lower court decisions make their way to potentially different Second Circuit panels on appeal.  At the same time, an appeal from the NLRB’s decision in D.R. Horton, which outlawed class action waivers altogether in employment cases, heads to the U.S. Court of Appeals for the Fifth Circuit. 

The outcome of these cases, and likely Supreme Court review, has important implications.  If courts refuse to enforce class action waivers, private arbitration of employment disputes will not survive in its current form.  Alternatively, if the courts align with recent Supreme Court opinions, employers may continue to limit their employees’ ability to pursue class or collective actions by requiring arbitration of claims on an individual basis.  Given the stakes, it is unlikely that employers will obtain certainty in this area until the Supreme Court revisits the issue.


Recently, the Supreme Court ruled in favor of arbitration and struck down a California state rule that deemed class action waivers in arbitration agreements unconscionable and unenforceable. AT&T Mobility v. Concepcion, 131 S.Ct. 1740, 1753 (2011) (discussed here). When confronted with a similar refusal to enforce class action waivers in a case brought under federal law (Credit Repair Organization Act), the Supreme Court likewise found an arbitration agreement enforceable according to its terms, reasoning that the federal statute lacked a clear “Congressional command” to the contrary. CompuCredit Corp. v. Greenwood, 132 S.Ct. 665, 670 (2012). In both cases, the Supreme Court found that the FAA mandate to enforce arbitration agreements was paramount. Nevertheless, the NLRB and several courts have refused to enforce agreements that waive class actions and require arbitration on an individual basis.

The NLRB’s Decision 

In D.R. Horton Inc., 357 NLRB 184, 2012 WL 36274 (NLRB Jan. 3, 2012), a two-member plurality of the NLRB held that Section 7 of the National Labor Relations Act prohibits employers from requiring employees to sign arbitration agreements that preclude class or collective actions. D.R. Horton required its employees, as a condition of their employment, to sign a Mutual Arbitration Agreement that precluded them from consolidating their claims, pursuing claims on a class basis, or obtaining group relief.  An employee filed an unfair labor practice charge asserting that D.R. Horton improperly interfered with his ability to engage in “concerted activities” within the meaning of the NLRA. The Administrative Law Judge dismissed the complaint, but a two-member plurality of the NLRB reversed, finding that “an employer violates the NLRA by requiring employees, as a condition of employment, to waive their right to pursue collective legal redress in both judicial and arbitral forums.” Id. at *15. The decision applies to union and non-union represented employees alike, irrespective of the federal or state law under which the claims are brought. The D.R. Horton decision is now on appeal in the Fifth Circuit.

The Second Circuit’s Chaos

Prior to AT&T, the Second Circuit articulated its own “anti-class action waiver” rule in In re American Express Merchants Litigation, 554 F. 3d 300 (2d Cir. 2009) (“Amex I”). In that case, in an opinion by Judge Pooler, the Second Circuit held that a credit card contract containing a class action waiver – which required parties to pursue all claims in arbitration on an individual basis – was unenforceable because it “would effectively preclude any action seeking to vindicate the statutory rights asserted.” Id. at 304. The Supreme Court vacated and remanded the Amex I decision in light of its intervening decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010). 

On remand, in another decision by Judge Pooler, the Second Circuit relied upon an expert affidavit to find that the only economically feasible means to enforce the statutory rights in question was through a class action because the amount of an individual recovery was too small to justify pursuing claims on an individual basis. In re Am. Express Merchants’ Litig., 634 F.3d 187, 198 (2d Cir. 2011) (“Amex II”) (available here). The Second Circuit again concluded that enforcing the class action waiver would “flatly ensure” that no small merchant could challenge Amex’s arrangements and immunize Amex from federal antitrust laws – a result not intended by Congress. Id. at 199.          

Following the Supreme Court’s decision in AT&T, Judge Pooler authored a third opinion on the issue.  In Re Am. Express Merchants’ Litig., 667 F. 3d 204 (2d Cir. 2012) (“Amex III”) (available here). Although the Second Circuit acknowledged that it was “tempting” to interpret Supreme Court authority as rendering class action arbitration waivers “per se enforceable,” it reasoned that the Supreme Court had not yet addressed whether a class action arbitration waiver clause was enforceable where plaintiffs demonstrated that the practical effect of enforcement would be to preclude their ability to vindicate federal statutory rights. Id. at 212. 

The Second Circuit denied Amex’s petition for en banc review over two vigorous dissenting opinions from five judges. In Re Am. Express Merchants’ Litig., — F.3d —-, 2012 WL 1918412 (2d. Cir. May 29, 2012). Judge Jacobs, joined by Judge Cabranes and Judge Livingston, openly criticized the panel’s opinion in Amex III, accusing the panel of employing a “dubious” ground to distinguish AT&T and using a public policy – other than the public policy that the Supreme Court made paramount – to frustrate the goals of the FAA. Id. at *4-5. Judge Raggi, joined by Judge Wesley, dissented on the ground that Amex III created a split with the Ninth Circuit’s recent decision in Coneff v. AT&T Corp., 673 F.3d 1155 (9th Cir. 2012), warranting examination by the full court. Id. at *11. In Coneff, the Ninth Circuit rejected a similar invitation to make an exception to the enforceability of class action waivers where they prevent litigants from vindicating their statutory rights. Coneff, 673 F.3d at 1158-59. Against this backdrop, it seems certain that Amex will seek Supreme Court review.

Meanwhile, several controversial, anti-arbitration decisions are making their way on appeal through the Second Circuit. In Raniere v. Citigroup, Inc., 827 F. Supp. 2d 294, 311-14 (S.D.N.Y. 2011), the district court concluded that a plaintiff’s ability to pursue overtime claims under the FLSA on a collective basis was a substantive right that could not be waived in an arbitration agreement – even though the court found that the potential recovery in an individual case was sufficient as a practical matter to allow claims to be brought on an individual basis. In Chen-Oster v. Goldman, Sachs & Co., No. 10 Civ. 6950, 2011 WL 2671813, at *3-4 (S.D.N.Y. July 7, 2011), the district court refused to compel arbitration of individual claims, finding that Title VII guaranteed the right to pursue pattern or practice claims on an class-wide basis. And in Sutherland v. Ernst & Young, LLP, 768 F. Supp. 2d 547, 550-54 (S.D.N.Y. 2011) (discussed here), also in the Southern District of New York, a district court rejected the holding in Raniere – that the right to collective actions under the FLSA was non-waivable – but still refused to compel individual arbitration under the Amex rule, because the cost to prosecute plaintiff’s individual claims was prohibitive.  Appeals in these cases are likewise before the Second Circuit.

If the history of Amex III is any guide, these three cases may yield different outcomes depending on the Second Circuit panel appointed for each appeal, making the future of class action waivers in arbitration increasingly difficult to predict in the Second Circuit. 


If allowed to stand, the decisions in Horton and Amex III would have the practical impact of greatly limiting arbitration of employment disputes, as employers refuse to institute arbitration programs that might allow bet-the-company class claims to be decided by an arbitrator with virtually no right of appeal. On the other hand, if the decisions are overturned, those rulings will pave the way for employers to institute mandatory arbitration programs that require employees to bring claims on an individual basis. The enforceability of class action waivers – and the future of arbitration – thus remain open issues of significance in the workplace class action context.