The United States Court of Appeals for the Sixth Circuit (“Federal Appellate Court”) stated in its opinion filed on August 15, 2018: “The Supreme Court recently held that the National Labor Relations Act does not invalidate individual arbitration agreements. Epic Systems Corp. v. Lewis, 138 S. Ct. 1612, 1632 (2018). That holding answers half of this case. The other half, in which the plaintiffs seek to carve out a separate destiny for the Fair Labor Standards Act, meets a similar end. Since neither Act is an obstacle to the arbitration agreements in this case, we reverse and remand for further proceedings consistent with this opinion.”
The Underlying Facts
Jonathan Gaffers is a former employee of defendant Kelly Services, Inc. (“Kelly Services”). Kelly Services provides outsourcing and consulting services to firms around the world. One of these services is “virtual” call center support, where employees like Gaffers work from home.
Gaffers alleged that Kelly Services underpaid him and his fellow virtual employees. Specifically, Gaffers alleged that Kelly Services shortchanged them for time spent logging in to Kelly Services’ network, logging out, and fixing technical problems that arise. Gaffers brought suit on behalf of himself and his co-workers (over 1,600 joined the action) seeking back pay and liquidated damages under the collective-action provision of the Fair Labor Standards Act. 29 U.S.C. § 216(b).
About half of the employees that Gaffers sought to represent signed an arbitration agreement with Kelly Services (Gaffers himself did not sign one, but he is the representative of the collective action). Those agreements state that individual arbitration is the “only forum” for employment claims, including unpaid-wage claims. Kelly Services therefore moved to compel individual arbitration under the Federal Arbitration Act. 9 U.S.C. § 4. In response, Gaffers contended that the National Labor Relations Act and the Fair Labor Standards Act rendered the employees’ arbitration agreements unenforceable. The district court agreed and denied Kelly Services’ motion to compel arbitration. Kelly Services appealed, and the Federal Appellate Court proceeded with a de novo review.
Gaffers argued on appeal that the FLSA’s collective-action provision and the Arbitration Act are irreconcilable and that the former therefore displaces the latter. The Federal Appellate Court stated that in Epic, the U.S. Supreme Court held that a federal statute does not displace the Arbitration Act unless it includes a “clear and manifest” congressional intent to make individual arbitration agreements unenforecable. To clearly and manifestly make arbitration agreements unenforceable, Congress must do more than merely provide a right to engage in collective action. Instead, Congress must expressly state that an arbitration agreement poses no obstacle to pursuing a collective action. As in the NLRA, Congress made no such statement in the FLSA.
The FLSA provision at issue provides that an employee can sue on behalf of himself and other employees similarly situated. 29 U.S.C. § 216(b). In other words, it gives employees the option to bring their claims together. 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. Accordingly, the Federal Appellate Court stated 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.
The Federal Appellate Court held: “because the FLSA does not “clearly and manifestly” make arbitration agreements unenforceable, we hold that it does not displace the Arbitration Act’s requirement that we enforce the employees’ agreements as written. Accordingly, we reverse the district court’s decision to deny Kelly Services’ motion to compel on this basis.”
The Federal Appellate Court also rejected Gaffers’ argument that because the FLSA gives the employees a right to pursue a collective action, the agreements that the employees signed with Kelly Services requiring them to pursue individual arbitration are illegal and therefore unenforceable. The Federal Appellate Court held that the savings clause that allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract” (9 U.S.C. § 2) includes an “equal-treatment” rule: individuals can attack an arbitration agreement like they would any other contract but they cannot attack the agreement simply because it is one involving arbitration. Accordingly, defenses that (1) apply only to arbitration agreements, or (2) interfere with the “fundamental attributes of arbitration” are both insufficient.
The Federal Appellate Court held that 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. If otherwise, Gaffers (and others) could use this contract defense to attack arbitration itself and that selective treatment is exactly what Epic says is not allowed.
Gaffers v. Kelly Services, Inc., No. 16-2210.
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