CONNECTICUT COURT UPHOLDS CLASS ACTION WAIVER IN FLSA CASE

In an encouraging development for employers, the United States District Court for the District of Connecticut recently enforced a class action waiver contained in an alternative dispute resolution policy and dismissed an FLSA collective action, leaving the lead plaintiff to pursue his individual claims in arbitration.  The case is Pomposi v. GameStop, Inc., 2010 U.S. Dist. LEXIS 1819 (D. Conn. Jan. 11, 2010).

 The lead plaintiff in this purported collective action, Justin Pomposi, was a former Store Manager at a GameStop retail store located in Meriden, Connecticut.  In September 2007, GameStop introduced the “GameStop C.A.R.E.S. Rules of Dispute Resolution Including Arbitration” (“C.A.R.E.S.”) during an annual conference in Las Vegas, Nevada.  At the conference, which Pomposi attended, GameStop gave a presentation outlining the C.A.R.E.S. program, including the class action waiver, and provided attendees a copy of the C.A.R.E.S. program and an explanatory brochure.  While Pomposi denied any recollection of receiving the C.A.R.E.S. policy, he admittedly received the brochure.  Pomposi also executed a written acknowledgement confirming receipt of the Store Manager’s handbook, which contained a copy of the C.A.R.E.S. program and provided: “I understand that by continuing my employment with GameStop following the effective date of GameStop C.A.R.E.S., I am agreeing that all workplace disputes or claims, regardless of when those disputes or claims arose, will be resolved under the GameStop C.A.R.E.S. program rather than in court.  This includes legal and statutory claims, and class or collective actions in which I might be included.”  Pomposi remained in GameStop’s employ until August 5, 2008, when he was terminated for failing to bring deposits to the bank in a timely manner.

 In March 2009, Pomposi filed the instant collective action on behalf of himself and all other similarly situated Store Managers who, Pomposi alleged, were improperly classified by GameStop as exempt executives and therefore unlawfully denied overtime compensation in violation of the FLSA.  GameStop moved to dismiss the action and compel arbitration of the FLSA claims pursuant to the C.A.R.E.S. program.  The court agreed with GameStop that Pomposi executed a valid agreement to arbitrate and by thereafter continuing to report to work waived his right to bring claims in court, including class and collective actions.  In so finding, the court rejected Pomposi’s contention that continued at-will employment is insufficient consideration for an agreement to arbitrate as incompatible with district court precedent.

 The court also rejected Pomposi’s argument based upon the Second Circuit’s “vindication of statutory rights analysis” as set forth in In re American Express Merchandise Litigation, 554 F.3d 300 (2d Cir. 2009).  Under that analysis a purported waiver of statutory rights, such as a class action waiver, is unenforceable if it “removes a plaintiff’s only reasonably feasible means of recovery.”  In American Express, the Second Circuit invalidated a class action waiver in an antitrust action where the plaintiff established that the cost to arbitrate individual claims was “prohibitively expensive.”  Specifically, the Court of Appeals concluded that because the average claim was worth less than $2000.00 and proving the antitrust violation would require the plaintiffs to expend between $300,000.00 and $2,000,000.00 in non-recoverable expert fees, enforcing the class action waiver would effectively grant the defendant de facto immunity.  Pomposi’s claims, by contrast, were straightforward and readily provable without the aid of an expensive expert.  Moreover, the arbitration policy expressly provided for an award of attorneys’ fees and costs to a prevailing plaintiff to the same extent as available under applicable law.  The district court therefore concluded that Pomposi failed to meet his burden of showing that the disparity between his potential recovery and anticipated litigation costs were so great that the case could not be effectively prosecuted on an individual basis.

 Finally, the court rejected Pomposi’s contention that the class and collective action waiver provision rendered the arbitration agreement substantively unconscionable, citing numerous decisions standing for the proposition that “the right to bring a collective action under the FLSA is a right that can be waived.”

The decision in Pomposi is worth reading as it provides employers with a road map on how to draft an effective FLSA class and collective action waiver.  Employers with arbitration programs in place or under consideration would also be wise to stay on the lookout for the U.S. Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeed Int’l Corp., a case that was argued last year and raises the issue of whether imposing class arbitration on parties whose arbitration agreements are silent on the point is consistent with the Federal Arbitration Act.  The Stolt-Nielsen decision will undoubtedly impact the landscape for class and collective action waivers under the FLSA.

By: Lawrence Peikes and Jonathan Bardavid, Wiggin and Dana LLP

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