United States: Third Circuit Holds Overtime Class Action Is Not Subject To Arbitration

The Third Circuit recently affirmed the decision of a Pennsylvania district court, holding that a class action involving overtime compensation filed against the operating companies of a senior care facility is not subject to arbitration.

The background of the case is as follows. Plaintiffs filed their putative class and collective action against the defendants under the Fair Labor Standards Act (FLSA) and Pennsylvania wage and hour statutes. Plaintiffs alleged that the defendants failed to pay proper overtime compensation. The defendants moved to compel arbitration, based on an arbitration clause in an Employment Dispute Resolution Program book that plaintiffs agreed to as a condition of employment. The clause provides that arbitration is "the only means of resolving employment related disputes." However, the clause also states that it "covers only claims by individuals and does not cover class or collective actions." The Pennsylvania district court read the clause as unambiguously carving out class and collective actions from mandatory arbitration and accordingly denied defendants' motion to compel arbitration. The defendants appealed to the Third Circuit.

The Third Circuit noted the question presented: "Does an arbitration clause stating that it 'covers only claims by individuals and does not cover class or collective actions' nonetheless require that a putative class and collective action for overtime pay be sent to arbitration?" The Third Circuit affirmed the district court's decision. Recognizing the strong federal policy favoring arbitration, the Court noted that policy has its limits, and the text of the arbitration clause controls. The Court then held the clause at issue "unmistakably provides that plaintiffs' class and collective actions need not be subject to arbitration."

Novosad v. Broomall Operating Company LP, No. 16-2089 (3d Cir. April 10, 2017).

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