Court: District Court, S.D. Illinois; November 27, 2017; Federal District Court
Defendants have filed a motion to compel arbitration of Plaintiffs' claims related to alleged violations of the Fair Labor Standards Act (FLSA), New York Labor Law (NYLL), and individual discrimination claims under the New York State Human Rights Law (NYSHRL) and New York City Human Rights Law (NYCHRL), arguing that these claims should be arbitrated on an individual basis. Plaintiffs counter that the arbitration agreement they signed is unconscionable, as they were pressured to sign it without receiving translations in their native languages and because it contains a confidentiality clause that they argue is invalid under the precedent set by Cheeks v. Freeport Pancake House. They request that the confidentiality clause be struck and that arbitration proceed collectively.
The Court finds the Arbitration Agreement valid and enforceable, ruling that Plaintiffs' claims fall within its scope, thus granting Defendants' motion to compel arbitration. However, the determination of whether collective arbitration is permitted, as well as the validity of the confidentiality clause under Cheeks, are deemed matters for the arbitrator to resolve, not the Court.
In the background, Plaintiff Suqin Zhu, along with co-plaintiffs Nelson Leung and Lip Kuen Moy, has alleged various violations, including failure to pay overtime, misclassification as exempt employees, lack of proper employment notices, insufficient paystub information, and discriminatory practices related to pay and holidays based on race. Zhu initiated the collective action on July 13, 2016, on behalf of herself and similarly situated employees, with Leung and Moy subsequently joining the lawsuit.
Plaintiffs, Zhu, Moy, and Leung, signed a Dispute Resolution/Arbitration Agreement as a condition of their employment on specified dates in February and January 2012. They attest in court declarations that they received the agreement in English but were not provided with a translation. A Chinese-speaking secretary urged them to sign the document immediately without understanding its contents or implications. The Agreement requires Plaintiffs to waive their rights to a court or jury trial, mandating that employment-related disputes be resolved through binding arbitration before a mutually agreed-upon arbitrator. It covers a range of claims, including breach of contract, unpaid wages, wrongful termination, and discrimination under various laws, and specifies adherence to the American Arbitration Association's Employment Arbitration Rules, alongside applicable federal laws.
The Plaintiffs' linguistic backgrounds reveal that Zhu's native language is Mandarin Chinese, while Leung and Moy are native Cantonese speakers fluent in Mandarin. All three claim to be unable to read or understand English. Plaintiff Zhu initiated a collective action on July 13, 2016, on behalf of sous chefs and similarly situated employees employed after July 30, 2012. In response to the Complaint, Defendants proposed a motion to compel arbitration and dismiss the case, arguing that Zhu signed a valid arbitration agreement and that her claims fell within its scope. On October 20, 2016, Zhu sought permission to file a motion for collective action certification.
On October 21, 2016, Plaintiff Zhu submitted a letter opposing the Defendants' motion to compel arbitration, claiming she was fraudulently induced to sign the agreement and that no binding agreement existed as it was not fully executed. Zhu also argued that the arbitration agreement conflicted with Second Circuit case law, specifically referencing Cheeks v. Freeport Pancake House Inc. During a pre-motion conference on October 27, 2016, the Court considered Zhu's request for a certification motion alongside the Defendants' motion to compel arbitration, but no rulings were made as both parties expressed a desire to pursue settlement discussions. On November 8, 2016, individuals Leung and Moy submitted consent forms to join the case. The Court noted that it had not certified a collective action and that no conditional certification motion or amended complaint had been filed to formally add Leung and Moy as plaintiffs. Nevertheless, the Court accepted the parties' references to Leung and Moy as plaintiffs based on their consent submissions.
On March 31, 2017, following unsuccessful settlement attempts, the Court mandated the Defendants to submit their motion to compel arbitration by April 20, 2017, the Plaintiffs to file their opposition by May 11, 2017, and the Defendants to submit any reply by May 25, 2017. The parties complied with these deadlines.
The discussion highlights the Federal Arbitration Act (FAA) as the governing law for arbitration decisions. The FAA, particularly Section 2, establishes that written arbitration provisions in contracts involving commerce are valid and enforceable unless legally revoked. This section underlines a strong federal bias favoring arbitration agreements, necessitating that courts compel arbitration in line with such agreements unless there are concerns about the agreement's formation. The FAA's principles apply equally in employment contexts, with courts consistently enforcing arbitration agreements between employers and employees.
Arbitration is recognized for its cost-saving benefits, especially in employment disputes, and courts in this jurisdiction have found claims under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL) to be arbitrable. The Second Circuit has affirmed that employment contracts can mandate arbitration as a condition of employment, and disparities in bargaining power do not invalidate such agreements. The existence of a valid arbitration agreement is a contractual matter, and arbitration is fundamentally a consensual process. Courts are thus justified in compelling arbitration when a valid, enforceable agreement exists.
An issue of fact regarding the formation of an arbitration agreement necessitates a trial, as established in Bensadoun v. Jobe-Riat. Courts evaluate four factors to determine if a case should be sent to arbitration: (1) whether the parties agreed to arbitrate, (2) the scope of that agreement, (3) whether any federal statutory claims are intended to be nonarbitrable, and (4) if only some claims are arbitrable, whether to stay the other claims pending arbitration. The court applies a summary judgment standard when deciding on motions to compel arbitration. If the party seeking arbitration presents sufficient evidence, the opposing party must provide proof of a factual dispute. The burden lies with the party resisting arbitration to show the agreement is inapplicable or invalid. The existence of an arbitration agreement is governed by state law, requiring the proponent to demonstrate, by a preponderance of the evidence, that a valid agreement exists. Under New York law, mutual assent is necessary for a valid agreement, which is typically evidenced by a signature, creating a presumption of assent. A signatory cannot avoid obligations by claiming ignorance of the contract's terms, even if due to illiteracy or language barriers. However, a party may be relieved of obligations if a court finds the contract unconscionable.
A contract in New York is deemed unconscionable when it is excessively unreasonable, requiring both procedural and substantive elements. Procedural unconscionability examines the contract formation process and whether there was a lack of meaningful choice, while substantive unconscionability assesses the fairness of the contract terms. Unconscionability can be established when one party lacks meaningful choice and the terms are overly favorable to the other party. However, simply having difficulty understanding English does not suffice for a claim of unconscionability unless there is evidence of coercive tactics that pressured a party to sign without proper review.
In terms of arbitration, the defendants seek to compel individual arbitration, while the plaintiffs request collective arbitration. The determination of whether collective arbitration is permissible depends on whether the issue qualifies as a "question of arbitrability," which concerns whether a dispute is subject to arbitration. The Supreme Court has clarified that such questions are typically for judicial determination unless the parties explicitly state otherwise. The term "question of arbitrability" is narrowly defined, applying primarily to situations where parties expect a court to resolve gateway issues, such as the binding nature of an arbitration clause or its applicability to specific claims.
The term "question of arbitrability" is not applicable to various situations where it is expected that an arbitrator will decide on procedural matters related to the dispute's resolution. Interpretation of specific provisions within an arbitration agreement is generally reserved for the arbitrator once a district court affirms the validity of the arbitration agreement and the parties' intent to arbitrate. The Supreme Court and Second Circuit have not explicitly defined whether collective arbitration availability is a "question of arbitrability." However, two Supreme Court cases provide guidance:
1. In *Green Tree Fin. Corp. v. Bazzle*, the Court indicated that if an arbitration agreement does not specify the availability of class arbitration, that question should be decided by the arbitrator, as it pertains to contract interpretation rather than the arbitration clause's validity.
2. In *Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp.*, the Court emphasized that there can be no assumption of consent to class arbitration without explicit contractual provisions allowing it, as class arbitration fundamentally alters the nature of arbitration.
Thus, the determination of whether parties agreed to class arbitration must be based on clear contractual language, not inferred from a general agreement to arbitrate.
Justice Ginsburg, in dissent, points out two critical aspects regarding class arbitration: (i) the Court does not require explicit consent for class arbitration, only a contractual basis indicating agreement, and (ii) contracts of adhesion presented on a take-it-or-leave-it basis are exempt from the affirmative-authorization requirement. Following the Supreme Court's decision in Stolt-Nielsen, some courts in the District have mandated individual arbitration instead of allowing arbitrators to decide on class arbitration. For instance, in Anwar v. Fairfield Greenwich Ltd., the court ruled for individual arbitration due to a lack of language in the arbitration agreement indicating class arbitration. Similarly, in Sanders v. Forex Capital Mkts. LLC, the court also mandated individual arbitration for the same reason. However, most courts in the Circuit have determined that the question of class or collective arbitration should be resolved by arbitrators. In In re A2P SMS Antitrust Litigation, the court supported this view, highlighting that the form of proceedings is within the arbitrator's authority. Citing Bazzle as a key authority, the court emphasized its importance in the absence of conflicting Supreme Court or Second Circuit precedent. In Wells Fargo Advisors, L.L.C. v. Tucker, the court further reinforced that arbitrators should decide on the collective arbitration of FLSA and NYLL claims. Other cases, such as Edwards v. Macy's Inc. and Guida v. Home Sav. of America, Inc., also concluded that the determination of class-wide arbitration is a matter for arbitrators. Overall, the prevailing trend among various courts is that procedural questions regarding arbitration, including consolidation, should be resolved by arbitrators, not courts.
The parties executed valid and enforceable arbitration agreements as a condition of employment, supported by consideration. Plaintiffs argue the agreements are unconscionable, claiming procedural unconscionability due to their inability to read or understand English and being pressured to sign without a translation, and substantive unconscionability due to a confidentiality clause that allegedly violates legal precedent and discourages claims against Defendants. The Court finds no merit in these claims.
For procedural unconscionability, the Court notes that Plaintiffs did not attempt to negotiate the terms, request a translated version, or indicate any coercive tactics by Defendants beyond being told to sign quickly. The absence of high-pressure tactics or threats undermines their claim. Moreover, under New York law, parties unable to read English are expected to make reasonable efforts to understand the documents, which Plaintiffs failed to do, particularly since a Chinese-speaking secretary was available. Therefore, the procedural unconscionability claim is rejected due to lack of evidence supporting coercion or deception.
The Arbitration Agreement is not deemed substantively unconscionable. Substantive unconscionability arises only when contract terms are extraordinarily unreasonable and favor one party excessively. Plaintiffs assert that the confidentiality clause within the Agreement is unconscionable, alleging it contravenes Cheeks and discourages claims against Defendants. However, the confidentiality requirements are mutual, applying equally to both Plaintiffs and Defendants, and the Agreement does not disproportionately favor either party. Courts have consistently ruled that arbitration agreements are valid when terms apply equally to both employer and employees, and when the employer bears arbitration costs, as is the case here. Additionally, the Agreement includes a severability clause, ensuring that should any provision become unenforceable, the remainder remains effective. A saving clause further specifies that confidentiality obligations are subject to legal requirements. While the Court refrains from interpreting these clauses, it indicates that if the confidentiality clause were found unenforceable, it would not invalidate the entire Agreement unless Plaintiffs could demonstrate its inseparability, which they have not. Therefore, the Arbitration Agreement is upheld as not substantively unconscionable.
The Arbitration Agreement is enforceable and applicable to the Plaintiffs' claims, which are broadly defined within the Agreement. Courts favor broad interpretations of arbitration clauses, and the Agreement's language mandates arbitration for "any and all claims" against the Company, covering various legal bases including statutory and common law claims. Specifically, claims related to unpaid wages and discrimination fall under the Agreement's explicit provisions. Federal law, particularly the Fair Labor Standards Act (FLSA), does not prevent arbitration of these claims; instead, courts have upheld the validity and enforceability of arbitration agreements in employment contexts. Additionally, the determination of whether collective arbitration is permissible is a matter for the arbitrator to decide, not the court, aligning with precedents that classify such issues as related to contract interpretation and arbitration procedures rather than to the validity or applicability of the arbitration clause itself.
The availability of collective arbitration is determined by the arbitrator, as supported by broad language in the Arbitration Agreement covering "any and all claims" against the Company, unlike the narrower scope in Bazzle. This expansive language favors arbitration, aligning with the federal policy promoting arbitration agreements. The Supreme Court has characterized arbitrability questions as narrow and limited, suggesting that only specific circumstances would lead parties to expect a court to decide such matters. The Court finds that the issue of collective arbitration does not fall within these limited bounds. Defendants' reliance on Stolt-Nielsen is deemed misplaced, as the parties there had stipulated the arbitration agreement was silent on collective arbitration, whereas in the current case, both parties assert the Agreement addresses the issue, albeit with differing interpretations. These interpretation disputes are to be resolved by the arbitrator. Additionally, the context in Stolt-Nielsen involved sophisticated business entities lacking a tradition of class arbitration, contrasting with the current case where the parties disagree on the contract's language, indicating a different scenario regarding collective arbitration.
The parties involved are individual employees with limited English proficiency who were instructed to sign the Arbitration Agreement without the chance to review translated versions or negotiate its terms. The Stolt-Nielsen ruling did not address who decides arbitration matters, stating only that a party cannot be compelled to engage in class arbitration without a contractual basis for consent. The plaintiffs argue that the confidentiality provision in the Agreement makes it unconscionable and undermines the public policy objectives of the Fair Labor Standards Act (FLSA). The defendants counter that the confidentiality provision does not affect the enforceability of the arbitration agreements and is protected by a saving clause. They also suggest a severability clause could allow the rest of the Agreement to remain enforceable despite any issue with the confidentiality provision. The Court refrains from adjudicating these matters, stating that such issues are for the arbitrator to resolve, including the interpretation of the saving and severability clauses. Consequently, the Court grants the defendants' motion to compel arbitration but denies the request for individual arbitration, indicating that the arbitrator will decide these questions. The case is to be stayed pending arbitration, in line with Second Circuit precedent.
Plaintiff Lip Kuen Moy's declaration opposing the defendants' motion to compel arbitration references the arbitration agreement and asserts that New York law governs the claims at issue. The court, exercising supplemental jurisdiction over New York state law claims, applies New York choice of law rules, which dictate that claims involving conduct regulation are determined by the law of the jurisdiction where the conduct occurred. Since all relevant actions took place in New York, New York law is applied to evaluate the arbitration agreement's validity. The defendants cite two cases, Sutherland v. Ernst & Young LLP and Chen-Oster v. Goldman Sachs & Co., to support their position on class arbitration; however, these cases are deemed irrelevant as they do not address the key question of who decides on class arbitration availability. The court finds no indication in the record that only some claims are arbitrable and, as the parties have not raised this issue, the court chooses not to analyze the fourth Oldroyd factor.
