In August, the United States Court of Appeals for the Sixth Circuit (covering Kentucky, Michigan, Ohio and Tennessee) upheld an arbitration agreement that required individual arbitration of claims under the federal Fair Labor Standards Act (FLSA). The Court’s decision is in line with the United States Supreme Court’s decision in Epic Systems Corp. v. Lewis.
In Gaffers v. Kelly Services, a former employee brought suit against his employer for alleged violations of the Fair Labor Standards Act (FLSA). The plaintiff alleged that he and other remote workers were not compensated for the time spent logging in and out of the company’s network and addressing technical issues. Although the named plaintiff had not signed an arbitration agreement, the employer sought to compel arbitration on an individual basis based on the arbitration agreements that members of the putative collective action had signed. Prior to the Epic decision, the Eastern District of Michigan ruled that both the National Labor Relations Act (NLRA) and the FLSA rendered the employees’ arbitration agreements unenforceable.
Decision from the Sixth Circuit
A unanimous panel reversed the decision. After noting that Epic was dispositive of the NLRA issue, the panel considered the plaintiffs’ FLSA argument, using Epic as a guide. In Epic, the Supreme Court held that a federal statute does not preempt the Federal Arbitration Act (FAA) unless there is a “clear and manifest” congressional intent to nullify individual arbitration agreements. Because the plain language of the FLSA only gives employees the option to pursue their claims collectively, but does not require employees to vindicate their rights in this manner, the appellate court determined that the FLSA did not override the FAA and that the individual arbitration agreements were enforceable. The Court noted that the employees who had not signed arbitration agreements were free to sue collectively, while those who did sign arbitration agreements are not able to do so, and that was in harmony with the FLSA’s provisions which allow employees the option to pursue collective relief.
The Court also rejected the plaintiffs’ argument that, under the FAA’s savings clause (which allows courts to refuse to enforce arbitration agreements on the basis of generally-available contract defenses), the arbitration agreements were purportedly unenforceable on the basis of “illegality” because the agreements required individual proceedings, not collective ones. The panel reiterated Epic’s holding that the savings clause only covers defenses that apply to “any” contract. Employees cannot attack an agreement simply because it involves arbitration on an individual basis. The panel also reiterated the Supreme Court’s statement in Epic that “one of arbitration’s fundamental attributes is its historically individualized nature.” Accordingly, objecting to an arbitration agreement precisely because it requires individualized arbitration proceedings instead of class or collective ones does not bring a plaintiff within the territory of the savings clause.
While the result in Gaffers is not particularly surprising given Epic and the Supreme Court’s prior decisions in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 347-48 (2011) (confirming the enforceability of class action waivers in arbitration agreements) and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 27 (1991) (addressing the Age Discrimination in Employment Act’s collective-action provision), it certainly underscores that US employers should consider adding a class and collective action waiver in their arbitration agreements.
Please contact your Baker McKenzie employment lawyer with any questions about whether arbitration agreements are right for your workforce and how to draft your agreements to ensure they are enforceable in each jurisdiction in which you operate.