PHILADELPHIA – A federal appeals court stated that a reputed class action filed against the operating companies of a senior care facility are not subject to arbitration, affirming the decision of the lower federal court.

On April 10, U.S. Court of Appeals for the Third Circuit judges Michael A. Chagares, Anthony J. Scirica and D. Michael Fisher ruled the case brought by Irene Novosad and Kathy Morris’s case against Broomall Operating Company, L.P. and SavaSeniorCare, LLC dealing with overtime compensation did not need to be sent to arbitration.

“Does an arbitration clause stating that it ‘covers only claims by individuals and does not cover class or collective actions’ nonetheless require that a putative class and collective action for overtime pay be sent to arbitration? The District Court thought not. We will affirm,” Fisher said.

Fisher explained the plaintiffs filed their putative class and collective action against the defendants under the Fair Labor Standards Act (FLSA) and comparable Pennsylvania wage and hour statutes.

Fisher added the plaintiffs alleged that the defendants failed to pay proper overtime compensation. In response, the defendants moved to compel arbitration, pointing to an arbitration clause in an Employment Dispute Resolution Program book that plaintiffs agreed to as a condition of employment.

“The clause makes arbitration ‘the only means of resolving employment related disputes.’ At the same time, however, the clause also states that it ‘covers only claims by individuals and does not cover class or collective actions.’ The District Court read this latter sentence as unambiguously carving out class and collective actions from mandatory arbitration and accordingly denied defendants’ motion. This appeal followed,” Fisher said.

“We agree with the District Court that the arbitration clause’s plain language excludes class and collective actions from mandatory arbitration. Defendants’ contrary argument renders that provision of the clause superfluous. It makes little sense for the clause to state that it “covers only claims by individuals and does not cover class or collective actions” only to require arbitration of such suits,” Fisher said.

“We recognize, of course, that there is a strong federal policy favoring arbitration. But that policy has its limits, and courts apply the presumption of arbitrability ‘only where a validly formed and enforceable arbitration agreement is ambiguous about whether it covers the dispute at hand.’ Here, the text of the arbitration clause controls. That clause, we hold, unmistakably provides that plaintiffs’ class and collective actions need not be subject to arbitration,” Fisher added.

The plaintiffs were represented by Timothy S. Seiler and Ari Risson Karpf of Karpf Karpf & Cerutti, in Bensalem.

The defendants were represented by Ryan P. Newell and Josiah Rodney Wolcott of Connolly Gallagher in Newark, Del., plus Henry M. Perlowski and Chesley S. McLeod of Arnall Golden Gregory, in Atlanta.

U.S. Court of Appeals for the Third Circuit case 16-2089

U.S. District Court for the Eastern District of Pennsylvania case 2:15-cv-06252

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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