On April 6, 2015, the United States Supreme Court declined to review the Sixth Circuit’s opinion in Killion et al. v. KeHE Distributors, LLC, 761 F.3d 574 (6th Cir. 2014), in which the Sixth Circuit refused to enforce Fair Labor Standards Act (FLSA) collective action waivers. Distinguishing itself from every other Circuit that has addressed FLSA collective action waivers, the Sixth Circuit held that employees may only agree to waive their right to participate in a collective-action so long as they retain the right to individually arbitrate their FLSA claims.
In Killion, a number of KeHE sales representatives were discharged as part of a corporate restructuring. Four discharged sales representatives sued, claiming KeHE misclassified them as “outside sales employees” exempt from the FLSA and failed to pay them overtime. The plaintiffs sought to certify the suit as a collective action. KeHE argued in opposition that the vast majority of the discharged sales representatives signed severance agreements which included waivers of the employees’ rights to participate in a FLSA collective action. The trial court originally enforced the waivers, allowing only four former KeHE employees, who refused to sign the severance agreements containing the collective-action waiver, to opt-in and join the suit.
On appeal, the plaintiffs argued, and the Sixth Circuit ultimately agreed, that employees cannot waive their rights under the FLSA, including their right to join collective actions. KeHE countered that the FLSA grants both procedural and substantive rights and that employees may waive their procedural rights (e.g. the ability to join collective actions). The company argued that seven other Courts of Appeals – the Second, Third, Fourth, Fifth, Eighth, Ninth, and Eleventh Circuits – have enforced FLSA collective action waivers.
The Sixth Circuit distinguished the opinions of its sister Circuits, stating that in all of those cases the collective action waivers included arbitration provisions. The Supreme Court had previously held that employees cannot waive their FLSA rights unless there is a “contrary Congressional command.” Congress’s strong preference for arbitration in passing the Federal Arbitration Act (FAA) is just such a command, the Sixth Circuit reasoned. FLSA rights, therefore, can only give way in the presence of an arbitration agreement. Without arbitration, employees cannot waive their collective action rights. The reasoning behind this, however, is unclear because regardless of whether an arbitration agreement exists, the employee would still retain the right to file an individual FLSA claim (in either federal court or arbitration) even if he waived his collective action rights.
KeHE appealed the case to the Supreme Court, arguing that the other Courts of Appeals did not rest their holdings on the FAA. As such, the Sixth Circuit’s opinion created a circuit split regarding waiver of collective action rights that the Supreme Court should resolve. The Supreme Court, however, declined review. Because the Supreme Court issued no opinion it is unclear how Courts of Appeals other than the Sixth Circuit will deal with FLSA collective action waivers outside the context of an arbitration agreement.