June 24, 2014
According to the United States Court of Appeals for the Eleventh Circuit, a private arbitration agreement trumps collective actions under the Fair Labor Standards Act (“FLSA”). The Court’s liberal interpretation of the principles underlying the Federal Arbitration Act has slowly eroded a variety of employment and consumer protection rights. In Walthour v. Chipio Windshield Repair, 745 F.3d 1326 (11th Cir. 2014), another one bites the dust.
In Walthour, plaintiff employees entered into an arbitration agreement with their defendant employer, in which the parties agreed to submit any employment disagreement to binding arbitration and to only pursue claims individually, not as class members. The agreement expressly stated that individual employees waived their right to participate in a collective action or other representative actions.
The plaintiffs in the case were manual laborers who worked as window repairers, making less than the statutorily required minimum wage. Two of the employees sued, claiming violations of the FLSA and taking advantage of the statute’s explicit encouragement of employees to join together in a “collective action” to pursue the minimum wage violations. The company responded by seeking to invoke the terms of the arbitration agreement and to dismiss the collective action. The district court, Judge Amy Totenberg, ordered arbitration and dismissed plaintiffs’ complaint. The employees appealed.
The employees argued that congressional intent embodied in the FLSA which confers a right to pursue claims collectively superseded the terms of the private arbitration agreement. The employees also relied upon the public policy underlying collective actions, including the reality that individual employees are unlikely to pursue claims because the economic value of such claims is relatively small. The Eleventh Circuit disagreed, finding that the federal policy of encouraging arbitration under the Federal Arbitration Act is not inconsistent with the right of employees to pursue cases collectively.
Walthour most certainly represents a victory for companies who violate the FLSA. As the plaintiffs in that case argued, individual claims are difficult and expensive to bring against employers, who normally possess vastly more economic resources. Most attorneys representing employees would be reluctant to take on a wage and hour dispute if the claims are limited to a single plaintiff. In nearly every case brought under the FLSA, the time and fees incurred in bringing the case far exceed the value of the claim. This reality can backfire against overzealous employers, however. In the recent case of Cain v. Almeco USA, Inc., 2014 WL 2158413 (N.D.Ga., May 23, 2014), a single plaintiff claimed that she was denied overtime under the FLSA. The company refused to settle and submitted the case to a jury, and lost. While the actual overtime award was only $6,097, the Court awarded attorney’s fees in excess of $173,000.
The benefits of collective actions are manifold for both sides of a dispute. For the employer, there is finality; for the employee, there is “safety in numbers” to share the expense and the risk; for the judicial system, there is efficiency. Lead by local Chambers of Commerce and other “conservative” interests, some employers continue to pursue rigid enforcement of arbitration agreements in the hopes of cutting employees off at their knees. Depriving an employee of the ability to pursue a collective action will, in most cases, effectively prohibit a lawsuit. But, as the result in Cain and other cases demonstrate, the risks of taking a hard line can have unintended consequences.