The Sixth Circuit has upheld an arbitration agreement in the face of arguments that the Federal Arbitration Act was displaced by the Fair Labor Standards Act (“FLSA”) and the National Labor Relations Act.
The case arises from a lawsuit brought by several current and former employees of Kelly Services, Inc. The firm provides outsourcing and consulting services to other companies around the world. Plaintiff in this case, Jonathan Gaffers, was hired by Kelly Services, Inc. to provide remote call-center services outsourced from other companies. Gaffers sued his employer alleging he was not paid for time logging in and out of the company’s remote desktop system, and for time spent working out technical glitches in the company’s computer system.
Gaffers was joined in the lawsuit by 1,600 other Kelly Services employees alleging the same FLSA violations. About half of the 1,600 plaintiffs in the class action had previously signed arbitration agreements with Kelly Services as a part of their employment with the company. Though Gaffers himself never signed one, problems arose when Kelly Services filed motions to compel arbitration. The United States District Court for the Eastern District of Michigan initially denied the motion compel, finding Kelly Services’ arguments unpersuasive.
Kelly Services, Inc. appealed to the Sixth Circuit Court of Appeals. In their opposition to the motion to compel, Plaintiffs argued that the FLSA and the NLRA replaced the Federal Arbitration Act and rendered the arbitration agreements unenforceable. If these arguments sound familiar, it’s because they are the exact arguments addressed by the Supreme Court’s decision in Epic Systems. We wrote about this case in our July 2018 newsletter. Because the Supreme Court in Epic Systems addressed the NLRA argument used by Plaintiffs in this case, the court dismissed these arguments out of hand, stating “as it relates to the NLRA, the Supreme Court heard and rejected these arguments last term in Epic.”
But the Court of Appeals also noted that Epic Systems answers only half of this case, as Plaintiffs also brought a similar argument regarding the Federal Arbitration Act. Specifically, Plaintiffs argued that the FLSA and the FAA were irreconcilable and, thus, the FLSA’s provision on class actions replaced an employer’s ability to enforce arbitration agreements under the FAA. The court dismissed this argument as well, stating that congress had not manifested a clear intent to make individual arbitration agreements unenforceable.
The court then turned to the FAA savings clause. The FAA savings clause “allows courts to refuse to enforce arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract.” Therefore, Plaintiffs argued, because the FLSA gives employees the right to pursue collective action for wage-and-hour violations, any agreement forcing them to pursue individual arbitration is illegal and unenforceable. The court dismissed this argument as well, stating that “one of arbitration’s fundamental attributes is its historically individualized nature;” allowing an objection to an arbitration agreement on the grounds that it requires individualized arbitration could be used to attack the entire system of alternative dispute resolution. Thus, this objection “does not bring a plaintiff within the territory of the savings clause.”
This case serves to confirm the Supreme Court’s holding that plaintiffs will carry a heavy burden when arguing that other statutes besides the FAA provide a basis for finding arbitration agreements unenforceable. Federal courts have been busy addressing these arbitration cases. In fact, the Supreme Court heard a similar case on October 3, 2018 addressing the FAA’s applicability to independent contractors in the transportation industry. Employers who utilize arbitration clauses in their employment contracts would be well-served to stay current on the shifting landscape of the enforceability of these clauses.
Many employers desire arbitration as an alternative to costly and lengthy litigation with employees or classes of employees. These cases have somewhat reinforced Court preference to defer matters to arbitration where the parties have contracted for that remedy as an alternative to Court litigation. Employers who desire to utilize arbitration of future employment disputes must carefully draft these clauses and obtain employee acknowledgment.
Attorneys at Fishel Downey Albrecht & Riepenhoff LLP routinely defend employers, including in arbitration. For questions about this case or any other matter, please contact Benjamin Albrecht (balbrecht@fisheldowney.com) or Daniel Sabol (dsabol@fisheldowney.com) by email or phone (614) 221-1216.