Restrictions on Employer Communication Upheld by Ninth Circuit

Employment Law

In an appeal presenting recurring issues facing district courts in managing whether and how prospective parties are brought into wage and hour lawsuits under the collective action procedures of the Fair Labor Standards Act (FLSA), the Ninth U.S. Circuit Court of Appeals affirmed an order imposing a communication restriction on an employer.

Lorenzo Dominguez, a former underwriter for Better Mortgage Corporation, alleged that the company violated federal and state wage and hour laws, primarily by failing to pay overtime.

Within weeks of the lawsuit, Better Mortgage attempted to reduce its risk by decreasing the size of the potential class and collective action. The company held a virtual meeting with all of its underwriter employees and attempted to persuade them to sign agreements, which provided the underwriters $5,000 each for releasing their non-FLSA claims in the lawsuit.

The company also sent an email with a new employment agreement that featured a clause requiring arbitration of all employment-related claims, and only in an individual proceeding, not a class or collective arbitration. Better Mortgage told the underwriters that signing the new agreement was a condition of continued employment.

Both agreements warned recipients not to share the documents.

Dominguez filed a motion asking the district court to invalidate both the release agreements and the new employment agreements, arguing that Better Mortgage’s ability to communicate with putative class and collective action members without court approval should be restricted.

Siding with Dominguez, the court found that Better Mortgage obtained signatures on the new employment agreements and release agreements through coercion and misleading information and invalidated them.

The court also required Better Mortgage to send a court-approved curative notice to the underwriters and prohibited the company from communicating with putative class members except in writing as approved by the court.

Better Mortgage appealed.

The Ninth Circuit affirmed the restriction on communication, finding it both justified and tailored to the situation.

“The Supreme Court recognizes that district courts have the duty and the power to oversee communications from both defendants and class counsel with potential class members and FLSA collective action participants, but also that this power must be exercised cautiously,” the court wrote.

Here, the district court exercised the appropriate caution, the court found.

“The district court’s detailed order shows a careful analysis of the prior communications and how those communications affected the employees’ understanding of their options in this pending lawsuit,” the court explained. “The misleading and coercive nature of these efforts was clear.”

In addition, the district court “paid attention to the timing of the messages, to how the different messages presented inconsistent and thus confusing information, and to missing content that could have helped employees better evaluate their options,” the panel noted.

Better Mortgage argued that the restriction should be narrowed to permit it to discuss wage and hours matters with employees and obtain factual information to defend itself in the litigation, which the Ninth Circuit said showed that it intended to continue communicating with current employees in ways related to the lawsuit.

The district court acted within its discretion in finding that narrowing the restriction would have allowed Better Mortgage to circumvent the order.

“Under the court’s restriction on communication, Better Mortgage remains free to communicate about the lawsuit and issues central to it,” the court wrote. “But it needs to communicate in writing, and it needs prior court approval, which is reasonable here. Given Better Mortgage’s record in this lawsuit, including both the misleading and coercive communications … and its desire to continue communication with potential class members to build its defense in this lawsuit, the district court tailored its order appropriately and did not abuse its discretion.”

Turning to Better Mortgage’s appeal of the order nullifying new employment and release agreements, the federal appellate panel said it lacked appellate jurisdiction over the issue because it was raised in an interlocutory appeal and did not fit any exception that would allow for review at this point in the litigation.

“Our decision to affirm the communication restriction here does not resolve whether the nullification of agreements was also proper,” the court said. “There is substantial overlap, both factual and legal, but the outcome of one does not necessarily control the outcome of the other.”

To read the opinion in Dominguez v. Better Mortgage Corporation, click here.

Why it matters

When considering communication with employees about pending litigation, employers should take note of the restrictions imposed by the court and avoid misleading and coercive communications that could lead to a similar outcome, including the nullification of release and employment agreements.  



pursuant to New York DR 2-101(f)

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