The Sophisticated Employer Blog

Earlier this year, the U.S. Supreme Court held that the National Labor Relations Act (NLRA) does not invalidate arbitration agreements that prohibit class/collective actions and require employees to bring their claims individually. See Epic Systems Corp v Lewis, 138 S Ct 1612, 1632 (2018) for complete details. 

Well, in August, such agreements withstood a similar challenge under the Fair Labor Standards Act (FLSA) on an appeal before the U.S. Court of Appeals for the Sixth Circuit. This is good news for employers. Let’s take a look at the appellate court’s ruling in Gaffers v Kelly Services, Inc.

Plaintiff Jonathan Gaffers is a former employee of Kelly Services who worked from his home as part of its virtual call center support services. He claims that Kelly Services underpaid him and other “virtual” employees by failing to compensate them for time spent logging into and out of the network, and while technical problems were being fixed. Gaffers filed suit in the Eastern District of Michigan and over 1,600 virtual coworkers joined the collective action which sought back pay and liquidated damages (for a willful violation) under the FLSA.

Nearly half of the employees, including Gaffers, had signed arbitration agreements with Kelly Services that required employment claims, including wage claims, to only be brought as individual arbitration claims. Kelly Services filed a motion seeking to compel individual arbitrations under the Federal Arbitration Act. In response, Gaffers argued that both the NLRA and the FLSA rendered the arbitration agreements unenforceable. The district court agreed and Kelly Services appealed.

The appellate court began by noting that, in Epic, the Supreme Court had already rejected the argument that the employees’ rights to engage in concerted activity under the NLRA invalidate arbitration agreements that preclude class/collective actions. Relying on Epic, the appellate court rejected Gaffers’ argument that the Federal Arbitration Act is inconsistent with collective (class) actions permitted under the FLSA. A federal statute can only displace the Federal Arbitration Act if “Congress expressly state[s] that an arbitration agreement poses no obstacle to pursuing a collective action.” The FLSA does not.

The FLSA only provides employees with an option of pursuing their claims together. It does not require collective actions. Therefore, “employees who do not sign individual arbitration agreements are free to sue collectively, and those who do sign individual arbitration agreements are not.” Based upon the reasoning in Epic the appellate court held that the FLSA does not override the Federal Arbitration Act and the individual arbitration agreements are enforceable. The appellate court also rejected the other arguments asserted by Gaffers and found the agreements forcing employees to bring their claims individually valid.

Why is this a big deal for employers? It creates a practical problem for employees and their legal counsel. An individual’s claim for unpaid wages is usually a relatively small amount and, since a plaintiff’s attorney generally handles cases on a one third contingency basis, there aren’t sufficient damages/fees involved to make the matter worthwhile for the attorney.

If, however, you can bundle together a hundred or a thousand claims, it makes the case financially attractive to attorneys who represent plaintiffs. Entering arbitration agreements with employees requiring claims to be brought individually prevents the bundling.

So, is an arbitration agreement something you should have with your employees? It depends. 

There are numerous issues to consider such as the likelihood of wage claims in your industry and against your company, the court(s) where your employees would be required to file suit (whether it is a good venue for employers or employees) whether you are using an arbitration service (such as the American Arbitration Association) that will require the employer to pay the full cost of the arbitrator’s fees, in addition to its own attorneys’ fees. And, if an arbitration agreement is right for your company, which claims should be subject to the agreement?

Because of the variables, employers should consult with an experienced employment attorney to determine if an arbitration agreement is right for them.