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5th Circuit Holds Notice of Collective Action to Employees with Arbitration Agreements Was Improper, but Denies Mandamus

The Fifth Circuit Court of Appeals recently held that a district court erred when it approved sending notice of an FLSA collective action to employees who had agreed to arbitrate employment claims: “district courts may not send notice to an employee with a valid arbitration agreement unless the record shows that nothing in the agreement would prohibit that employee from participating in the collective action.”

In the underlying case, a call-center employee sued a national bank alleging that it violated the FLSA by failing to compensate her and other employees for working “off-the-clock.”  Plaintiffs subsequently moved to conditionally certify a collective action consisting of approximately 42,000 current and former call-center employees, and asked the district court to send notice to all putative collective members.  The bank argued that approximately 35,000 of the putative collective members had waived their right to proceed collectively by signing binding arbitration agreements.  However, in its order, the district court conditionally certified the collective action, which included the 35,000 individuals with arbitration agreements.  The bank asked the district court to certify its order for interlocutory review and to stay its order, both of which the district court denied.  The bank filed a petition for a writ of mandamus, asking the appeals court to direct the district court to exclude from notice of the collective action “any employees who signed arbitration agreements waiving their rights to participate in [the] collective action.”  The Fifth Circuit agreed to stay the district court’s order while it heard the bank’s petition.

While the Fifth Circuit ultimately determined that the district court did err in ordering notice to employees with arbitration agreements, the lower court did not “clearly and indisputably” err, as is required for a writ of mandamus, and thus the panel denied the petition.  The panel noted that while courts have discretion to send notice of pending FLSA actions to potential opt-in plaintiffs, the Supreme Court’s precedent in Hoffmann-La Roche Inc. v. Sperling did not explain whether employees with arbitration agreements waiving their right to proceed collectively count as “potential plaintiffs,” and further reasoned that Hoffmann-La Roche “nowhere suggests that employees have a right to receive notice of potential FLSA claims.” 

The court reasoned that the purpose of giving discretion to facilitate notice is because of the need for “efficient resolution in one proceeding of common issues, but that district courts “do not ‘have unbridled discretion’ to send notice to potential opt-in plaintiffs.”  Furthermore, the court stated that to notify employees who signed arbitration agreements would reach into disputes beyond the “one proceeding,” and alert individuals who cannot ultimately participate in the collective.  This “merely stirs up litigation,” which is prohibited pursuant to Hoffmann-La Roche.

Because the Fifth Circuit found that the district court did not “clearly and indisputably” err, the Fifth Circuit continued its stay of the district court’s order for 30 days to give the district court full opportunity to reconsider its order in light of the Fifth Circuit’s new precedent.  This procedurally unusual result effectively asks the district court to change its ruling based on the precedent set by the court of appeals’ legal analysis, but does not order the district court to do so because the prerequisites for a writ of mandamus (which is a rare remedy) were not met.