When Congress enacts a civil rights law or other statute regulating employment decisions, it does so to set minimum terms that cannot be overridden or even modified by contracts between employers and employees, on the view that baseline rights must be statutorily established to protect employees or advance other policies. Arbitration agreements covered by the Federal Arbitration Act are an exception, but only with respect to matters like the right to a jury trial which are considered incompatible with arbitration, a non-court process. The Supreme Court in 14 Penn Plaza v. Pyett, 556 U.S. 247, 259 (2009), stated a different rationale for sustaining such waivers—that the right to initially resort to a judicial forum was a procedural right, not a waiver of substantive protections which would remain preserved in arbitration. 14 Penn Plaza itself involved an arbitration clause in a collective-bargaining agreement (CBA), so it remained unclear whether statutory procedural rights are generally waivable by contract outside of arbitration. The Second Circuit’s recent decision in Estle v. International Business Machines, No. 20-3372 (Jan. 20, 2022), treating the language in Pyett as holding, suggests they may be.
The plaintiffs in Estle were all above age 55 when IBM terminated their employment as part of a reduction in force in May of 2016. They each signed a separation agreement containing a mandatory arbitration clause and a collective action waiver as a condition of receiving post-termination benefits, including one month’s salary and health insurance for each year of prior employment, up to a maximum of twelve months. The collective action waiver stipulated that “no covered claims may be initiated, maintained, heard, or determined on a multiparty, class action basis or collective action basis either in court or in arbitration.” Under the agreement, the former employees were not “entitled to serve or participate as a class action member or representative, or collective action member or representative, or receive any recovery from a class or collective action involving covered claims either in court or arbitration.”
After signing IBM’s separation agreement, the plaintiffs claimed they learned of evidence that IBM was using reductions in force “to accomplish systemic age discrimination.” On March 27, 2019, the plaintiffs filed an Age Discrimination in Employment Act (ADEA) collective action against IBM in the Southern District of New York seeking, among other things, “a declaration that the collective action waiver is invalid under the ADEA and an injunction barring IBM from enforcing the waiver against the plaintiffs.” The plaintiffs then amended their complaint to challenge the entire separation agreement on August 9, 2019, to “be permitted to pursue their age discrimination claims collectively, either in arbitration or in court.” IBM moved to dismiss for failure to state a claim under Federal Rule 12(b)(6), arguing that its collective-action waiver was valid because the right to bring a collective action is a “procedural device to join claims,” not a substantive right covered by the ADEA’s waiver prohibition.
The ADEA provides: “An individual may not waive any right or claim under this Act unless the waiver is knowing and voluntary.” 29 U.S.C. § 626(f)(1). The law also provides minimum conditions that must be satisfied for the waiver to be enforced as knowing and voluntary. 29 U.S.C. § 626(f)(1)(A-H) (Waiver Conditions). Another section of the ADEA, 29 U.S.C. § 626(b), incorporates the right to bring an action “by any one or more employees for and in behalf of himself or themselves or other employees similarly situated” from the Fair Labor Standards Act (FLSA), 29 U.S.C. § 216(b). Thus, the plaintiffs maintained that the right to bring a collective action could not be waived outside of the ADEA’s mandatory requirements for “waiver of any right or claim under [the ADEA].” 29 U.S.C. § 626(f)(1). This included a right to obtain certain comparator information. IBM allegedly failed to disclose “any class, unit, or group of individuals covered by [the termination program], any eligibility factors for such program, and any time limits applicable to such program” and “the job titles and ages of all individuals eligible or selected for the program, and the ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program.” 29 U.S.C. § 626(f)(1)(H).
The district court granted IBM’s motion to dismiss because it determined that the right to bring a collective action is not a substantive right protected by § 626(f)(1). The Second Circuit affirmed, agreeing that the language “any right or claim under [the ADEA]” in § 626(f)(1) “is limited to substantive rights and does not include procedural ones.” Additionally, since “collective action, like arbitration, is a ‘procedural mechanism’ and not a substantive right,” the separation agreement’s collective-action waiver “is thus not a waiver of any ‘right or claim’ under the ADEA that triggers the requirements of 29 U.S.C. § 626(f)(1).” The court stated that this conclusion “flows directly from 14 Penn Plaza.”
The Waiver Conditions enumerated in § 626(f)(1) were central to the dispute in 14 Penn Plaza because they arguably required “individual” waivers, see, e.g., 29 U.S.C. § 626(f)(1)(C-F), and it was not clear that these conditions could be satisfied by “a collective-bargaining agreement [even one] that clearly and unmistakably requires union members to arbitrate claims arising under [the ADEA].” The court held that collective-action waiver agreements are “enforceable as a matter of federal law,” presumably because they are within “the permissible scope of the collective bargaining process,” and are not precluded by the ADEA because they involve procedural rights.
Purportedly following the Supreme Court’s reasoning in 14 Penn Plaza, the Second Circuit held that the collective-action provision of the ADEA was subject to contractual waiver because it dealt not with the substantive right to be free of workplace age bias but rather with the procedural right “to seek relief from a court in the first instance.’” The appeals court reasoned that the substantive-procedural right distinction stressed in 14 Penn Plaza was not dicta because the Supreme Court’s determination that the requirements of § 626(f)(1) did not apply to waivers of procedural rights was necessary to its conclusion that a collective bargaining agreement’s prospective waiver of union members’ right to bring ADEA claims in court is enforceable.
The substance-procedure dichotomy was emphasized in 14 Penn Plaza in the context of deciding whether a pre-dispute arbitration agreement had to comply with the Waiver Conditions in §626(f) of the ADEA. The court stated that § 626(f) did not apply to procedural rights but did not hold that contractual waiver of statutory procedures could occur outside of arbitration, which is supported by another federal statute, the FAA, where certain procedures are considered irreconcilable with arbitration. Similarly, the Second Circuit decision in Estle dealt with the question whether § 626(f) reached contractual waiver of procedural rights—such as the right to maintain a collective action under the ADEA. The court held it did not, but did not decide whether such statutory procedures were generally waivable or modifiable outside of arbitration.
Reprinted (with some modification) with permission from the February 9, 2022, issue date of the “New York Law Journal” © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or firstname.lastname@example.org