Smart employers live in fear of a Fair Labor Standards Act (“FLSA”) class or collective action. How does this play out? One employee is fired and his lawyer realizes that the employer failed to comply with the (incredibly difficult and confusing) wage and hour laws. The lawyer realizes his client is probably not the only employee effected by the company’s mistake, so he files a lawsuit on behalf of all similarly situated employees.

In other words, what once was a small issue involving one disgruntled former employee can now be massive – especially because the law provides for penalty damages (2-3 times the amount owed, depending on state or federal law), plus attorney fees.

One way to avoid this nightmare is to require that employees arbitrate their FLSA claims.  Companies can often go further – prohibiting class or collective FLSA arbitrations.  But the trick is to impose the arbitration requirement before the problem arises.

That was the hard lesson learned by the clothing store Citi Trends. The store was sued by two managers who sought overtime pay under the FLSA. After the complaint was filed with the court, the store went around to its other managers and asked them to sign arbitration agreements that prohibited collective actions. When the lawyers for the pending lawsuit sought to expand the class to include the other managers, the store tried to rely on the recently-obtained arbitration agreements. The court cried foul and told the company that the arbitration and class-prohibition ship had sailed.

As is true of most employment issues – proactive thinking can save major hassles, and reactive thinking can look retaliatory or coercive. The time to talk to your lawyer about implementing strategies to minimize inevitable claims is now – before the problems arise and the court says you are too late!

MERRY