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FLSA, like NLRA, is no barrier to enforcing arbitration agreements

By Kathleen Kapusta, J.D.

Reversing and remanding a district court order denying Kelly Services’ motion to compel arbitration of a former employee’s claim the staffing company underpaid him and his fellow virtual employees, the Sixth Circuit held that like the NLRA, the FLSA is not an obstacle to enforcing the employees’ arbitration agreements. The FLSA gives employees the option to bring their claims together, the appeals court explained, observing that “It does not require employees to vindicate their rights in a collective action, and it does not say that agreements requiring one-on-one arbitration become a nullity if an employee decides that he wants to sue collectively after signing one” (Gaffers v. Kelly Services, Inc., August 15, 2018, Thapar, A.).

The employee, who worked from home providing “virtual” call center support for Kelly Services, alleged that Kelly shortchanged him and his fellow virtual employees for time spent logging in to the company’s network, logging out, and fixing technical problems that arise. He brought suit on behalf of himself and his coworkers, over 1,600 of whom have since joined the lawsuit, seeking back pay and liquidated damages under the FLSA’s collective action provision.

Motion to compel denied. However, because about half of the employees he sought to represent had signed an arbitration agreement stating that individual arbitration was the “only forum” for employment claims, including unpaid-wage claims, Kelly moved to compel individual arbitration under the FAA. Denying the motion, the district court held that the NLRA and the FLSA rendered the employees’ arbitration agreements unenforceable.

Epic Systems. On appeal, the employee first argued that the NLRA and FLSA displaced the FAA by providing a right to “concerted activities” or “collective action.” He also argued that even if the NLRA or FLSA did not wholly displace the FAA, the statutes make the arbitration agreements illegal and thus unenforceable under the FAA’s savings clause. The appeals court explained that at least as it relates to the NLRA, the Supreme Court, in Epic Systems Corp. v. Lewis, rejected these arguments. Therefore, the NLRA is not a way out of an individual arbitration agreement.

FLSA. Turning to the employee’s FLSA argument, in which he contended that the statute’s collective action provision and the FAA are irreconcilable and that the former therefore displaces the latter, the court observed that pursuant to Epic, a federal statute does not displace the FAA unless it includes a “clear and manifest” congressional intent to make individual arbitration agreements unenforceable. “As in the NLRA, and all of the other statutes that the Supreme Court has considered, Congress made no such statement in the FLSA,” the Sixth Circuit stated.

Noting that the FLSA provision at issue provides an employee can sue on behalf of himself and other employees similarly situated, the court found it could give effect to both statutes: “employees who do not sign individual arbitration agreements are free to sue collectively, and those who do sign individual arbitration agreements are not.” Further, the court observed, every other circuit to have considered whether the FLSA overrides the FAA has said it does not.

Policy arguments. Despite Epic’s command and the clear import of the statutory text, the employee urged the court to rule otherwise for policy reasons. It refused, explaining that “Whether modern arbitration practice is consistent with Congress’s goals for the FLSA is a question that only Congress can answer.” Because the FLSA does not “clearly and manifestly” make arbitration agreements unenforceable, it does not displace the FAA requirement that the court enforce the agreements as written. Accordingly, the court reversed the district court’s decision to deny Kelly Services’ motion to compel on this basis.

Savings clause. The employee also pointed to the FAA’s savings clause, which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” Here, he contended, because the FLSA gives employees a right to pursue a collective action, the agreements that the employees signed with Kelly Services requiring them to pursue individual arbitration were illegal and therefore unenforceable. In Epic, however, the Supreme Court explained that the savings clause only covers defenses that apply to “any” contract and thus defenses that apply only to arbitration agreements or that interfere with the “fundamental attributes of arbitration” are insufficient.

The arbitration agreements at issue are illegal, the employee argued, because they require individual proceedings, not collective ones. But as the Court in Epic noted, one of arbitration’s fundamental attributes is its historically individualized nature. So objecting to an agreement “precisely because [it] require[s] individualized arbitration proceedings instead of class or collective ones” does not bring a plaintiff within the territory of the savings clause, the appeals court reasoned, noting that otherwise, employees could use this contract defense to attack arbitration itself. “That selective treatment is exactly what Epic says is not allowed.”

As to the employee’s claim that Sixth Circuit precedent establishes that one-on-one arbitration agreements are illegal under the FLSA and thus unenforceable under the savings clause, the court observed that even if he was correct about the cases he cited, Epic clearly overruled them because they would “target arbitration.” But more importantly, said the court, he “is wrong about the holdings of those cases” and Sixth Circuit precedent “does not prevent enforcement of the arbitration agreements in this cases.”