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Third Circuit Compels Arbitration in Meal Break Case and Finds No Basis for District Court's Unconscionability Ruling

April 9, 2012

Third Circuit Compels Arbitration in Meal Break Case and Finds No Basis for District Court's Unconscionability Ruling

April 9, 2012

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Employers who do not currently use mandatory arbitration agreements with their employees should consider the benefits of doing so.

On March 14, 2012, in Quilloin v. Tenet Healthsystem Phila., Inc., the U.S. Court of Appeals for the Third Circuit compelled arbitration of a registered nurse's state and federal wage-and-hour claims against her former employer, a hospital in Philadelphia, and related companies. The Third Circuit held that the nurse's agreement to arbitrate was not unconscionable, and even if there were ambiguous provisions in the agreement, those provisions must be interpreted by the arbitrator, not the district court.

Case Background

Plaintiff Janice Quilloin brought the suit in December 2009, alleging the defendants failed to pay her and other employees for work they performed during unpaid meal breaks in violation of the Fair Labor Standards Act (FLSA) and Pennsylvania wage-and-hour law. The defendants moved to compel arbitration, contending that Ms. Quilloin voluntarily agreed to submit employment disputes to arbitration when she signed an "Employee Acknowledgement" form confirming that she received her employer's "Fair Treatment Process" brochure, which included the arbitration requirement.

The district court denied the defendants' motion to compel arbitration, finding that the agreement to arbitrate might be unconscionable because it prohibited recovery of attorneys' fees and costs; contained a class action waiver; and permitted the defendants to "run out the clock" on the plaintiff's claims.

The Third Circuit disagreed with these conclusions and reversed the district court's decision. First, the Third Circuit found that the agreement did not clearly deprive employees of their right to recover attorneys' fees and costs. Regardless, the U.S. Supreme Court has held that ambiguities in arbitration agreements must be interpreted by the arbitrator, not the district court.

There was also no express class action waiver in Ms. Quilloin's agreement. The court acknowledged that silence regarding class arbitration "generally indicates a prohibition against class arbitration," but found that the issue of whether an agreement actually prohibits class arbitration is "a question of interpretation and procedure for the arbitrator."

More notably, the court stated that although class action waivers are unconscionable under Pennsylvania law, the state law "is clearly" preempted by the Federal Arbitration Act (FAA). This is because in April 2011, the U.S. Supreme Court ruled in AT&T Mobility v. Concepcion that a California law deeming certain class-action waivers to be unconscionable was an "obstacle to the accomplishment and execution" of the FAA and therefore preempted by it.

Interestingly, the Quilloin opinion does not acknowledge the National Labor Relations Board's (NLRB or "Board") January 2012 decision in D.R. Horton, Inc. There, a two-person Board held that requiring employees to waive their right to collectively pursue litigation of employment claims in both judicial and arbitral forums violates the National Labor Relations Act (NLRA). Ms. Quilloin, however, did not bring unfair labor practice charges against her employer.

The Third Circuit also rejected Ms. Quilloin's contention that the agreement was unconscionable because there were no time limits on the internal steps her employer required before she could submit her arbitration demand. She maintained that her employer could delay resolution of each of the internal steps until the statute of limitations periods for her claims expired. The Third Circuit disagreed and found that there were "reasonable time guidelines" for each of the internal steps, and regardless, Ms. Quilloin always had the option of filing a motion to compel arbitration before her claims expired.

Finally, the court found that Ms. Quilloin did not lack meaningful choice when she agreed to arbitrate her claims because she acknowledged the arbitration agreement twice—once when she was first hired in 2006 and then again when she was rehired in 2008.

What This Means for Employers

The Quilloin opinion should enable employers to more quickly compel arbitration in cases where the plaintiff agreed to arbitrate employment disputes yet has filed an employment claim in court. This will likely save employers the higher costs associated with litigating employment claims in court. Thus, employers who do not currently use mandatory arbitration agreements with their employees should consider the benefits of doing so.

Moreover, the Quilloin opinion clarifies that the Third Circuit deems class-action waivers in mandatory arbitration agreements to be enforceable under the Supreme Court's decision in Concepcion. It further acknowledges that although an agreement's silence on class arbitration generally operates as a prohibition on class arbitration, the arbitrator must make the final determination regarding the permissibility of class arbitration. Thus, including express class-action waivers in arbitration agreements may reduce the risks of having to arbitrate over whether such a waiver exists. In light of the recent NLRB decision, however, employers should proceed with caution when considering arbitration agreements that expressly waive class arbitration or are silent on the issue. Under the Board's D.R. Horton, Inc. decision, agreements that do not permit class litigation in either a judicial or an arbitral forum violate the NLRA.

Finally, the Third Circuit's decision is likely to have a significant impact on the ability of plaintiffs to argue that their arbitration agreements are unenforceable based on unconscionability. Employers should, however, review the language in their arbitration agreements to ensure, among other things, there is no waiver of employees' ability to recover attorneys' fees and costs.

For Further Information

If you have any questions about this Alert or would like assistance drafting or reviewing arbitration agreements, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.