Seventh Circuit Outlines Framework for Authorizing Notice to Individuals with Arbitration Agreements Waiving Right to Join FLSA Collective Action | Practical Law

Seventh Circuit Outlines Framework for Authorizing Notice to Individuals with Arbitration Agreements Waiving Right to Join FLSA Collective Action | Practical Law

In Bigger v. Facebook, Inc., the US Court of Appeals for the Seventh Circuit laid out a two-step process for a court authorizing notice to join a Fair Labor Standards Act (FLSA) collective action for individuals who are subject to mutual arbitration agreements waiving their right to join such an action.

Seventh Circuit Outlines Framework for Authorizing Notice to Individuals with Arbitration Agreements Waiving Right to Join FLSA Collective Action

by Practical Law Labor & Employment
Law stated as of 24 Feb 2020USA (National/Federal)
In Bigger v. Facebook, Inc., the US Court of Appeals for the Seventh Circuit laid out a two-step process for a court authorizing notice to join a Fair Labor Standards Act (FLSA) collective action for individuals who are subject to mutual arbitration agreements waiving their right to join such an action.
On January 24, 2020, in Bigger v. Facebook, Inc., the US Court of Appeals for the Seventh Circuit held that when a defendant opposing the issuance of notice alleges that proposed recipients entered arbitration agreements waiving the right to participate in the action, a court may authorize notice to those individuals unless either:
  • No plaintiff contests the existence or validity of the alleged arbitration agreements.
  • After discovery on the existence and validity of the alleged agreements, the defendant establishes by a preponderance of the evidence the existence of a valid arbitration agreement for each employee it seeks to exclude from receiving notice.
Since the district court did not follow this framework, the Seventh Circuit vacated the district court's order issuing notice and remanded for the court to apply the proper standard. The Seventh Circuit also affirmed the district court's denial of summary judgment for the employer.
By providing a standard for district courts in the Seventh Circuit to follow in FLSA collective actions where the defendant opposes notice based on employees' arbitration agreements waiving their right to join the action, Bigger gives the employer an opportunity to make that showing. The Seventh Circuit's framework requires the district court to take specific steps before authorizing notice by first determining whether any plaintiff contests the defendant's argument that a valid arbitration agreement exists. If no plaintiff contests this, the court may not authorize notice to employees whom the defendant alleged entered into valid arbitration agreements. However, if a plaintiff does contest the defendant's allegations, the court must permit the parties to submit additional evidence on the arbitration agreements' existence and validity. The employer bears the burden of proof at this step and must be prepared to show:
  • The existence of a valid arbitration agreement for each employee it seeks to exclude from receiving notice.
  • That the arbitration agreement prohibits the employee from participating in the action.
In its decision, the Seventh Circuit noted that sending notice to individuals that should be excluded based on arbitration agreements:
  • May inflate settlement pressure (instead of informing employees of an action in which they can resolve common issues).
  • Poses a risk of abuse of the collective action device.
Application of this new framework may serve to reduce those risks.
Employers should be aware that this framework applies to the notice stage of FLSA collective actions, but that employees who entered valid arbitration agreements may try opting in even without notice. Under those circumstances, the employer should consider moving to compel arbitration to exclude those employees from the action. Employers should also remember that there are other bases for objecting to the form and content of notice to potential opt-in plaintiffs in an FLSA collective action (see Practice Note, Notice of an FLSA Collective Action: Key Considerations and Best Practices).
UPDATE: On February 24, 2020, the Seventh Circuit denied rehearing and rehearing en banc (947 F.3d 1043 (7th Cir. 2020)).