Is collective arbitration the same thing as class arbitration?

According to a four-judge panel of New York’s Appellate Division, First Department, collective arbitration is not the same as class arbitration, such that the Supreme Court’s holding in Stolt-Nielsen (precluding class arbitration if the arbitration agreement is silent on the issue) does not apply to a collective of more than 700 Jet Blue pilots seeking arbitration of a salary dispute with the airline.  The pilots alleged that  the airline violated a provision of their employment contracts requiring the airline, if it raises the base salary of new pilots, to raise all pilots’ salary by the same percentage.

In Jet Blue Airways Corp. v. Stephenson, the appellate court ruled that the arbitrator, not a court, decides whether the pilots’ employment agreeements precluded a collective arbitration proceeding.  The court distinguished Stolt-Nielsen on the grounds that, in the proposed collective arbitration, all of the affected pilots would be actual parties.  The court then found that the decision whether the employment contracts precluded collective arbitration was not a “gateway” issue that the contracting parties would likely have expected a court to decide.

This decision tracks an opinion issued earlier this year in which a federal district court held that collective actions are not class actions within the meaning of FINRA’s Code of Arbitration Procedure Rules 12204 and 13204, which bans class arbitration at FINRA.   In Velez v. Perrin Holden & Davenport Capital Corp., an employee of a FINRA member sued his employer in the Southern District of New York, alleging violations of the Fair Labor Standards Act and of state law.  He sued on his own behalf and on behalf of similarly situated broker-employees of Perrin.  Velez asked the district court to designate his FLSA claims as a collective action and his state law claims as a class action.  The employer petitioned to compel arbitration of the FLSA claims arguing that FINRA’s ban of class arbitration proceedings in its forum does not apply to collective actions under the FLSA.  The district court agreed, and sent the FLSA claims to arbitration.  Not long after this decision, FINRA’s Board authorized its staff  to file a proposal with the SEC to amend its Code to expressly extend the ban of Rules 12204 and 12304 to collective actions under the FLSA.

It seems that some lower courts have carved out an exception to the Supreme Court’s class arbitration cases by finding collective claims sufficiently distinguishable from class claims as to exempt them from the full impact of the Court’s anti-class arbitration decisions in Stolt-Nielsen and AT&T v. Concepcion.   Legislative correction may be needed to have collective claims treated like class claims in the arbitration world.

H/T Ed Pekarek

One thought on “Is collective arbitration the same thing as class arbitration?”

  1. The distinction between class and collective arbitration is a fascinating one, and something that was recently the subject of a preliminary award on jurisdiction in Abaclat (formerly Beccara) v. Argentine Republic, , ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility dated August 4, 2011, available at http://italaw.com/documents/AbaclatDecisiononJurisdiction.pdf . I have a short piece on Abaclat coming out in the next edition of Arbitration News and have written extensively on class and collective arbitration in other contexts (see S.I. Strong, From Class to Collective: The De-Americanization of Class Arbitration, 26 Arbitration International 493 (2010), cited in Abaclat). It will be interesting to see whether other U.S. courts use this mechanism as a means of avoiding troubling precedents in Stolt-Nielsen and AT&T, or whether they will focus on other issues, such as whether class arbitration truly “changes the nature of arbitration,” as the Supreme Court has suggested. (see S.I. Strong, Does Class Arbitration ‘Change the Nature’ of Arbitration? Stolt-Nielsen, AT&T and a Return to First Principles,” 17 Harvard Negotiation Law Review __ (forthcoming 2012), available on SSRN).

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