Federal Court in Ohio Finds Collective/Class Action Waived

Predictive of the U.S. Supreme Court’s holding in AT&T Mobility LLC v. Concepcion, No. 09-893, the U.S. District Court for the Southern District of Ohio found that an arbitration agreement signed by department store employees prevented them from filing a collective or class action in court. The U.S. Supreme Court issued its 5-4 decision in AT&T Mobility on April 27, 2011. The narrow majority of the high court held that the Federal Arbitration Act preempted state law regarding the enforceability of a class action waiver in an arbitration agreement. Just a month earlier in Aracri v. Dillard’s Inc., No.: 1:10cv253 (3/29/11), two Dillard employees brought claims under the FLSA and analogous Ohio statutes for unpaid overtime. The employees filed a collective and class action respectively on behalf of themselves and all other similarly situated employees. Dillard’s required new hires to sign an arbitration agreement as part of the new hire paperwork and then the agreement was confirmed electronically shortly after employment commenced. At the top of the arbitration agreement in all capital letters it stated,

IMPORTANT NOTICE: THIS AGREEMENT WAIVES YOUR RIGHT TO A JURY TRIAL AND TO PURSUE LITIGATION IN COURT. READ IT CAREFULLY BEFORE SIGNING.

According to the terms of the agreement, an aggrieved employee must arbitrate all claims related to among other things, “overtime.” Further, the parties agreed to proceed under the “Rules of Arbitration” established by Dillard’s. Defending on this basis, Dillard’s sought dismissal of all collective and class action allegations, an order staying the proceedings in court and compelling arbitration of the individual claims. Citing to the Federal Arbitration Act, the Southern District did not find any basis to overturn the enforceability of the arbitration agreement. Further recognizing the federal public policy favoring arbitration, the Court held that any ambiguities in the arbitration agreement or doubts as to the parties’ intentions should be resolved in favor of arbitration. The Court held that the Dillard’s agreement was not unconscionable and that the Plaintiff’s had knowingly and voluntarily agreed to arbitration.

When confronted with the issue of arbitrating collective or class claims, however, the Court found that the Dillard’s Rules of Arbitration were silent. The Court held that a waiver of collective or class claims was not unconscionable and unenforceable per se, but because the Dillard’s Rules of Arbitration were silent on whether collective or class claims could be subject to arbitration, the Southern District determined that question was properly presented to an arbitrator. In other words, the underlying substantive claims for unpaid overtime were subject to arbitration; whether the claims could be heard as a collective or class action or just on an individual basis was a question for the arbitrator and not the Court.

Clear to the Court, however, was the fact that the Plaintiffs’ court-based collective and class claims were waived. The Court then dismissed without prejudice the Plaintiffs’ complaint and ordered the parties to proceed to arbitration.

The “take-away” for all employers is pretty simple: If you have an arbitration agreement, include a waiver of collective and class claims. Provided that employees are provided with notice and an opportunity to read and understand the terms of the agreement prior to acceptance, an attack as to unconscionability and unenforceability can be avoided.

by Paul L. Bittner, Schottenstein, Zox & Dunn Co., LPA

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