Arbitration Agreement Protects Employer from FLSA Collective Action

by Adair Melinsky Buckner on Feb. 08, 2013

Employment Employment Contracts 

Summary: Arbitration Agreement waiver protected employer from FLSA collective action suit

ARBITRATION AGREEMENT UPHELD AS PROTECTION AGAINST FLSA COLLECTIVE ACTION

If you’ve been keeping up with news, even on a local basis, you know that Fair Labor Standards Act (“FLSA”) claims (wage & hour overtime especially) continue to be a Number One source of headaches and big payments for employers.  The dreaded “collective” FLSA action, brought by one or more employees on behalf of all employees similarly situated, can bankrupt an employer.

The decision generally whether to enter into arbitration agreements with your employees has pro’s and con’s and should not be undertaken on an immediate knee-jerk basis without careful analysis with qualified counsel.  However, the scales continue to tip in favor of carefully- crafted arbitration agreements as a way to dodge one of the worst of bullets—an overtime collective action lawsuit.  On January 7, 2013, another federal appellate court, the 8th Circuit Court of Appeals, answered the question, “Can an employee waive the right to pursue a FLSA overtime claim on a collective or class basis in an arbitration agreement?”, with a “Yes.”  Now, the United States Courts of Appeals for the 3rd, 4th, 5th (our circuit), 8th, 9th and 11th Circuits have all rejected employee challenges to agreements requiring employees to arbitrate FLSA claims on an individual basis only.

In the most recent court test for enforceability of agreement to the individual arbitration of FLSA claims, Owen v. Bristol Care, Owen, the employee, and Bristol Care agreed to arbitrate “all claims or controversies” against each other, specifically including FLSA claims.  Further, they agreed that they would not arbitrate covered claims “as, or on behalf of, a class.”

Despite the arbitration agreement, Owen filed suit in federal court, claiming that she was misclassified as exempt and consequently denied overtime in violation of the FLSA.  She also sought, as many employees in her position so often do, to pursue the suit as a collective action on her own behalf and on behalf of other similarly situated employees.  Bristol Care filed a motion to stay the action and to compel arbitration, based on Owen’s arbitration agreement.  A unanimous 8th Circuit panel tersely rejected all the challenges to the waiver of the right to bring a collective action under Section 216(b) of the FLSA and upheld the enforceability of the arbitration agreement.

Plaintiff’s employment lawyers still have not given up fiercely challenging these “FLSA collective action waiver” agreements, so the battle is not over.  However, to date, no federal appellate court has denied enforceability of such agreement and precedent continues to favor enforcing agreements to arbitrate FLSA claims on an individual basis only. An arbitration agreement with your employees containing such a waiver is worth discussion with your counsel.

Adair Buckner is an Amarillo attorney with Buckner & Cross, L.L.P.  She is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization. Her other areas of practice include business law, business disputes, commercial litigation, estate planning, and probate. You can reach Adair at (806)-322-7777 or adair@bucknercross-law.com. This material is not intended to be legal advice. The contents are intended for general information purposes only.

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