According to the 7th U.S. Circuit Court of Appeals in Bigger v. Facebook Inc., 947 F.3d 1043 (7th Cir. 2020), valid arbitration agreements or summary judgment against the named plaintiffs may prevent class notices from being sent to employees who would otherwise be putative class members in collective action lawsuits.

Former Facebook employee Susie Bigger filed a collective action lawsuit against Facebook in the U.S. District Court for the Northern District of Illinois alleging that she was misclassified as ineligible for overtime pay under the Fair Labor Standards Act.

A “collective action,” similar to a class action, permits a plaintiff to represent themselves and others “similarly situated” in the prosecution of a lawsuit. Courts overseeing collective actions or class actions have discretion to send notice of the lawsuit to potential plaintiffs — those “similarly situated” — in the class.

In doing so, the 7th Circuit first reviewed the goals and dangers of collective actions. The “twin goals” of collective actions are (1) enforcement of the Fair Labor Standards Act by enabling employees to pool resources to prevent act violations and (2) efficiency in resolution of disputes by resolving common issues in a single action.

On the other hand, the dangers of collective actions are (1) the opportunity for abuse, such as use of the collective action device for settlement leverage and (2) use of the collective action notice as a means to solicit claims.

In light of these considerations, the court has the discretion to monitor preparation and distribution of notice to potential plaintiffs, but must maintain judicial neutrality, “avoiding even the appearance of endorsing the action’s merits.”

Here, Bigger proposed notice to a group of Facebook employees to inform them of her lawsuit and their potential participation in the lawsuit. The district court authorized the notice.

Facebook appealed the decision, arguing that the district court’s authorization of notice was improper because many of the proposed notice recipients had entered arbitration agreements that precluded them from joining the action.

In addressing “this issue of first impression,” the 7th Circuit set forth “specific steps” that a trial court must take when an employer in a collective or class action opposes issuance of a notice by asserting that the proposed recipients of the notice have entered into mutual arbitration agreements.

Specifically, if the plaintiffs who are seeking a collective action notice contest the employer’s allegation of valid arbitration agreements, then the trial court must hear evidence on the agreements’ existence and validity. At that point, “[t]he employer seeking to exclude employees from receiving notice has the burden to show, by a preponderance of the evidence, the existence of a valid arbitration agreement for each employee it seeks to exclude from receiving notice.”

Notably, the court may not authorize notice of the class or collective action to any employee who has been shown to have a valid arbitration agreement with the employer, if that arbitration agreement prohibits the employee from participating in the action. Therefore, the court remanded the matter to the district court to apply the new standard.

Also before the 7th Circuit on appeal was the district court’s denial of Facebook’s motion for summary judgment against Bigger. Specifically, Facebook argued that it was entitled to summary judgment because Bigger was exempt from the Fair Labor Standards Act.

While the court ultimately agreed with the district court that material issues of fact precluded Facebook’s summary judgment motion, the court also suggested that summary judgment against a named plaintiff in a collective action can defeat the collective action altogether. Specifically, the court noted that “if Bigger, as the sole plaintiff, lacks a viable claim against Facebook, then the action cannot proceed.”

Thus, the apparent upshot of Bigger is that valid arbitration agreements or successful summary judgment arguments against named plaintiffs may provide employers with a shield against employees receiving notice of a collective- or class-action lawsuit against the employer.

This, in turn, has the potential to reduce potential class size and potential damages of collective actions at an early stage of litigation.