Why it matters

Like the National Labor Relations Act (NLRA), the Fair Labor Standards Act (FLSA) doesn’t stand in the way of an employer’s motion to compel individual arbitration, the U.S. Court of Appeals for the Sixth Circuit determined. Jonathan Gaffers worked for Kelly Services from home, providing “virtual” call center support. He filed an FLSA lawsuit, later joined by more than 1,600 co-workers, seeking back pay and liquidated damages for the time spent logging in to and out of the company’s network and fixing technical problems. The employer moved to compel individual arbitration, pointing to agreements signed by roughly half of the putative plaintiffs. The district court denied the motion, finding that both the NLRA and the FLSA rendered the arbitration agreements unenforceable. Relying on the Supreme Court’s recent decision in Epic Systems Corp. v. Lewis, the Sixth Circuit reversed. The plaintiff’s argument with regard to the NLRA was precluded by Epic Systems, the federal appellate panel said, finding the FLSA suffered a similar fate. Therefore, neither statute provided the workers with a way out of their individual arbitration agreements, the court said.

Detailed discussion

Kelly Services provides outsourcing and consulting services to firms around the world, including virtual call center support. Jonathan Gaffers worked for Kelly from his home, providing call center support. He filed a Fair Labor Standards Act (FLSA) suit against his former employer, claiming that Kelly underpaid him and his fellow virtual employees for time spent logging in to the network, logging out of the network and fixing technical problems. Gaffers requested back pay and liquidated damages, with more than 1,600 other employees joining the action.

Kelly responded to the suit with a motion to compel arbitration. About half of the employees Gaffers sought to represent had signed an arbitration agreement stating that individual arbitration is the “only forum” for employment claims, including unpaid-wage claims.

Gaffers countered that the National Labor Relations Act (NLRA) and the FLSA rendered the arbitration agreements unenforceable. A district court judge agreed and denied the motion to compel.

The U.S. Court of Appeals for the Sixth Circuit reversed. With regard to the NLRA, the panel was guided by the Supreme Court’s Epic Systems Corp. v. Lewis decision. In that case, the justices held that employers do not violate the NLRA by requiring class and collective waiver provisions in arbitration agreements that employees must sign as a condition of employment.

With the question of the NLRA decided, the Sixth Circuit turned to the FLSA. Gaffers argued that the FLSA’s collective action provision and the Federal Arbitration Act (FAA) are irreconcilable, with the former displacing the latter. Emphasizing Epic’s holding that a federal statute does not displace the FAA unless it includes a “clear and manifest” congressional intent to make individual arbitration agreements unenforceable, the panel said the plaintiff failed to make his case.

“The FLSA provision at issue provides that an employee can sue on behalf of himself and other employees similarly situated,” the court wrote. “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, we can 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.”

For these reasons, the Supreme Court has already held that the Age Discrimination in Employment Act—a statute with the exact same collective action provision as the FLSA—does not displace the FAA, the Sixth Circuit said.

Gaffers’ policy-based argument did not sway the court either. “Whether modern arbitration practice is consistent with Congress’s goals for the FLSA is a question that only Congress can answer,” the panel wrote. “Our role is to interpret and analyze the statute’s text—not what Gaffers thinks Congress meant to say. And because the FLSA does not ‘clearly and manifestly’ make arbitration agreements unenforceable, we hold that it does not displace the [FAA’s] requirement that we enforce the employees’ agreements as written.”

The FAA’s savings clause was similarly unable to save the plaintiff’s claim. Although the 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,” Epic prevented Gaffers from arguing that requiring employees to pursue individual arbitration was illegal.

“[A]s the court in Epic noted, one of arbitration’s fundamental attributes is its historically individualized nature,” the Sixth Circuit said. “So 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. That selective treatment is exactly what Epic says is not allowed.”

The court reversed denial of the employer’s motion to compel individual arbitration and remanded.

To read the opinion in Gaffers v. Kelly Services, Inc., click here.