This week, the Supreme Court disappointed many employers by declining to determine whether the Fair Labor Standards Act does or does not provide employees with a non-waivable substantive right to bring a collective action. The employer in Killion v. KeHE Distributors was hoping the Supreme Court would answer that question in the negative and vacate an earlier Sixth Circuit Court of Appeals decision refusing to enforce a collective action waiver contained in a separation agreement.
Several former KeHE employees had commenced a collective action under the Fair Labor Standards Act after they were terminated in connection with a restructuring. The district court, while authorizing a collective action notice, excluded from those eligible to opt into the action the former employees who had previously executed separation agreements containing collective action waivers. The Sixth Circuit said the district court shouldn’t have done that because the Supreme Court’s holdings in American Express and other cases regarding the enforceability of class/collective action waivers used in arbitration agreements didn’t apply to a new context: their use in separation agreements. The Sixth Circuit noted that an employee’s “right to participate in a collective action cannot normally be waived.” Where there is no arbitration agreement present, “then there is no countervailing federal policy that outweighs the policy articulated in the FLSA.” Thus, the collective action waivers included in the separation agreements were unenforceable and the former employees could be part of the collective action if they wanted.
Saying that the Sixth Circuit’s opinion diverged from other circuits, the employer asked the court to settle the split and rule that the right to participate in a collective action under the FLSA is waivable under any context: that a waiver include in one type of employment agreement is just as enforceable as one included in another. But the Supreme Court declined to do so. For now, the Sixth Circuit is telling us that employers operating in that circuit can’t necessarily stick a collective action waiver in any plain old employment agreement; instead, they have to include it as part of an arbitration agreement or possibly some other agreement that is tied to one. Most other circuits have enforced these waivers, but each did so in the arbitration context. It’s unclear whether those circuits did so on the basis that the FLSA does not provide a non-waivable right to participate in a collective action and the fact that they were included in arbitration agreements was irrelevant (as KeHE argues) or on the basis that because an arbitration agreement is in play, the Federal Arbitration Act overrides the FLSA’s policy (as the Sixth Circuit said). We will stay tuned to see whether any circuit clarifies its position on this issue.