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FLSA Does Not Bar Individual Mandatory Arbitration of Wage Claims

    Client Alerts
  • August 27, 2018

In its recent term, the U.S. Supreme Court held in Epic Systems Corp. v. Lewis that the National Labor Relations Act does not prohibit mandatory arbitration agreements requiring that employment disputes be subject to individual rather than class action arbitration. This decision appeared to shut the door on challenges to class action prohibitions, but plaintiffs subject to individual arbitration mandates continue to attempt to pursue class or collective actions. Earlier this month, the Sixth Circuit Court of Appeals applied Epic System’s reasoning to a challenge to an individual arbitration mandate under the Fair Labor Standards Act.

In Gaffers v. Kelly Services, Inc., the plaintiff attempted to bring a collective action FLSA lawsuit, claiming failure by his employer to compensate workers for time spent logging in and out of the company’s computer system. The defendant moved to compel arbitration, and the plaintiff argued that the FLSA’s collective action provision supersedes the Federal Arbitration Act’s preference for arbitration of disputes, rendering the individual arbitration requirement unenforceable. The district court agreed, denying the motion to compel arbitration.

On appeal, the Sixth Circuit reversed this decision, remanding the claim for individual arbitration. The court noted that under the FLSA, collective actions are an option, and not the exclusive means for seeking relief. Like the Supreme Court in Epic Systems, the Sixth Circuit found no legislative intent in the FLSA for prohibiting employees from waiving the right to collective action. While acknowledging the policy concerns behind requiring individual arbitration of small wage claims, the court said that only Congress has the authority to make changes to the underlying statutes.

This decision demonstrates federal courts’ increasing reluctance to avoid application of mandatory arbitration agreements. Employers that have not used such agreements in the past may want to reconsider this practice, especially given the fact that such agreements can effectively stop employees from bringing class or collective action claims.