Court Refuses to Force Employees to Arbitrate Overtime Claims

The Fair Labor Standards Act (FLSA) allows employees to band together in a "collective action"  (a form of class action) to sue their employers as a group for unpaid overtime.  One way the employers try to get around this is by forcing employees to arbitrate these claims instead of going to court, and then prohibiting them from collective actions in the arbitration agreement.

Earlier this month, a federal judge in Manhattan struck down such an arbitration agreement.  In Sutherland v. Ernst & Young, LLP (warning -- you'll need a subscription to the PACER service to view the opinion) Judge Kimba M. Wood found Ernst & Young's standard arbitration agreement unenforceable, thus allowing a collective action to proceed in court.

The Plaintiff, Stephanie Sutherland, worked for Ernst & Young as a low-level accountant.  She claims that, despite the fact that most of her work was secretarial and clerical, Ernst & Young classified her as an "exempt" employee and denied her the overtime that she is entitled to by law.  When she brought suit as a collective action, Ernst & Young moved to dismiss, arguing that she must arbitrate her individual claim instead of going to court.  Judge Wood denied the motion to dismiss for several reasons.  First, Ms. Sutherland's costs and attorneys fees would exceed $200,000, when her maximum recovery would be just over $3,700.  The Court stated that "only a 'lunatic or a fanatic' would undertake such an endeavor" and went on to note that if she couldn't pursue the case as a class action, Ms. Sutherland would be forced to give up any rights she might have to recover overtime payments.  The Court also noted that, because the arbitration agreement left it to the arbitrator's discretion to award attorneys' fees, if forced to arbitrate Ms. Sutherland likely would not be able to find an attorney to represent her.  Finally, Judge Wood found that enforcement of the class waiver provision would effectively ban all proceedings by Ms. Sutherland, thus giving Ernst & Young de facto immunity from liability for violations of labor laws.

This well-reasoned decision recognizes the realities that face employees who are wrongfully denied overtime.  Often, the amount at issue is relatively small -- a few thousand dollars.  By trying to force employees to submit to an expensive arbitration process while denying them the ability to act collectively, employers are gaming the system so that they can never be held liable for their actions.  So a tip of the hat to Judge Wood!