Despite expressing serious reservations, a federal judge in Philadelphia has enforced an arbitration clause between an employee and Applebee’s, foreclosing the waiter from bringing his claim as a class action.
U.S. District Senior Judge Berle Schiller of the Eastern District of Pennsylvania said he is bound by precedent to enforce the arbitration agreement.
In his opinion, however, Schiller agreed with the plaintiff that the contract requiring him to resolve any claims he has against Applebee’s by himself, not as a class, through arbitration, not the courts, was unfairly stacked against him.
“This current state of legal affairs is lamentable,” Schiller said. “Workers of Applebee’s, as part of their desire to work, signed away their rights to bring a multitude of claims in court. Employers such as Applebee’s hold all of the cards here; Applebee’s can easily inform prospective applicants that if they do not like the terms of the deal, the applicants can just try to work in a different neighborhood. Its workers must therefore chew on a distasteful dilemma—give up certain rights or give up the job.”
Signing the contract agreeing to arbitrate their claims is a condition for being hired, according to the opinion, captioned Walton v. The Rose Group. The Rose Group is a Pennsylvania management company that owns 39 Applebee’s restaurants in the state. It required Charles Walton to sign a binding arbitration agreement, as it does with all of the people it hires to work in those restaurants.
Walton has now alleged that the company’s practice of paying wait staff below minimum wage because they earn tips, but requiring those workers to also perform duties for which they can’t earn tips is a violation of the Fair Labor Standards Act and the Pennsylvania Minimum Wage Act. Walton had wanted to bring the case as a class action.
Applebee’s, though, moved to stay the litigation and compel arbitration with Walton alone, not with a class—Walton had agreed to waive his right to bring a class action when he signed the arbitration contract. Schiller granted the request.
“The increasing frequency with which these arbitration clauses and class action waivers are employed is unfortunate, and in many situations, unjust,” Schiller said. “There is a reason that arbitration is the favored venue of many businesses for deciding employment disputes, and it is not to ensure that employees are afforded the best chance to have their claims adjudicated by a judge or jury picked from the community. This court, however, is not at liberty to ignore the decisions of the United States Supreme Court and the Third Circuit Court of Appeals.”
Schiller cited four cases—the U.S. Supreme Court’s 2011 case AT&T Mobility v. Concepcion, which killed a California rule that wouldn’t recognize class action waivers if they were included in lopsided arbitration agreements, and the U.S. Court of Appeals for the Third Circuit’s opinion in Quilloin v. Tenet HealthSystem that came the following year and was based on Concepcion.
The judge also cited the U.S. Supreme Court’s affirmation of class action waivers, made earlier this year in American Express v. Italian Colors Restaurant, in which the court rejected the argument that it would be cost-prohibitive for the merchants who were seeking to sue American Express as a class to arbitrate on an individual basis.
Schiller also cited to the U.S. Supreme Court’s 1991 opinion in Gilmer v. Interstate/Johnson Lane that established that the Federal Arbitration Act requires courts to compel arbitration where an arbitration clause has been signed.
“Viewed collectively, Concepcion, ItalianColors, Gilmer, and Quilloin point this court to one conclusion: The collective action waivers of the FLSA are not substantively unconscionable here,” Schiller said.
The judge had found, however, that the arbitration clause was procedurally unconscionable. But in order for an arbitration agreement to be unenforceable, it must be both procedurally and substantively unconscionable, he said.
The major contributors to the finding that the contract was procedurally unconscionable was that it was presented by Applebee’s as a “take-it-or-leave-it proposal,” meaning that Walton wouldn’t have a job that he needed if he didn’t sign the contract, and that the two parties to the contract were not on equal footing.
“On one side is The Rose Group, a restaurant management behemoth, ready to devour the college dropout desperately in need of a job,” Schiller said.
Even so, Walton didn’t have to give up anything by agreeing to arbitrate his claims instead of litigating them until the waiver of the class action component, Schiller said.
“Most of the time, the employer/employee relationship is a fruitful, congenial one, without incident,” Schiller said. “Employees do their work and cash their checks. Employers maintain decent working conditions and, they hope, run a successful business.
“Moreover, when an incident does arise, it is often settled before resorting to an adversarial process. But there exist circumstances when the issues are too complicated, the parties are too upset, or too much is at stake—in other words, when it really matters—when a judge and jury need to step in. Unfortunately, mandatory individual arbitration often steps in to close the courtroom to those individuals who need to use the courts.”
(Copies of the 27-page opinion in Walton v. The Rose Group, PICS No. 13-3319, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •