Sixth Circuit Limits Enforcement of Key Employment Contractual Waivers in FLSA Cases

Over the past few years, there has been considerable litigation over whether employees may contractually waive their right to bring class or collective actions against their employers.

For example, the NLRB in its D.R. Horton line of cases believes that arbitration agreements limiting employees in their right to bring collective or class actions are not enforceable since they arguably waive an employee’s Section 7 right to engage in concerted activities. The courts have not agreed with the NLRB, and applying the Supreme Court’s recent line of cases upholding arbitration agreements proscribing class relief, have held that the congressional support for arbitration vis-à-vis the Federal Arbitration Act is a stronger policy than other rights relating to the ability to seek class relief. Further, the courts have construed the FAA to hold that unless an arbitration agreement clearly permits the seeking of class relief through arbitration, such relief is not available – through arbitration or otherwise. See generally Owen v. Bristol Care, Inc., 702 F.3d 1050, 1054-55 (8th Cir. 2013)(arbitration agreement containing class action waiver is enforceable in claim brought under FLSA); Sutherland v. Ernst & Young LLP, 726 F.3d 290,295-96 (class action waiver must be enforced pursuant to the U.S. Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013)); Parisi v. Goldman, Sachs & Co., 710 F.3d 483, 486 (2d Cir. 2013) (undisputed that arbitration agreement did not provide for arbitration agreement on class-wide basis); Walthour v. Chipio Windshield Repair, LLC, 745 F.3d 1326, 1134-36 (11th Cir. 2014) (arbitration agreement which waives collective claims is enforceable); D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 558-61 (5th Cir. 2013) (class and collective action waivers are not inconsistent with the NLRA’s Section 7 concerted activity protections, and therefore such waivers in arbitration agreements between employers and employees are enforceable); Reed Elsevier, Inc. v. Crockett, 734 F. 3d 594, 600 (6th Cir. 2013) (where agreement is silent on the availability of class relief through arbitration, class relief is not available). See also Huffman v. The Hilltop Companies, LLC, 747 F.3d 391, 398 (6th Cir. 2014) (contract silent on right for bringing class claim in arbitration precludes the arbitration of class claims).

Recently, though, the Sixth Circuit Court of Appeals (i.e., the federal appellate court over the judicial districts in Michigan, Ohio, Kentucky and Tennessee) has held that agreements which limit rights under the FLSA which are not covered by the FAA may not be enforceable. That is, while such agreements may be enforceable if they are in the context of an FAA covered arbitration agreement, if the agreement is just an ordinary employment or separation agreement – and not an arbitration agreement – such agreements may not be enforceable.

The first of this line of cases was Boaz v. FedEx Customer Information Services, Inc., 725 F.3d 603 (6th Cir. 2013). In Boaz the employee signed an employment agreement requiring the bringing of claims within six months notwithstanding longer statutes of limitations. In the FLSA context, the court held, this waiver amounted to a waiver of a substantive right to wages under the FLSA, and since waivers of rights under the FLSA are not enforceable, the court refused to enforce this waiver. The court also inferred that its decision may have been otherwise if the case arose under an arbitration agreement “due to the strong federal presumption in favor of arbitration.” Id. at 606-07.

On July 30th, the Court of Appeals more formally articulated its view that waivers in arbitration agreements are different than waivers in other agreements. In Killon v. KeHE Distributors, LLC¸ Case Nos. 13-3357/4340 (6th Cir. July 30, 2014), the court for the first time addressed whether waivers to bring class or collective claims in non-arbitration agreements are enforceable. The waivers in this case were specified in employment separation/severance agreements. The employees signed those agreements and later attempted to join a collective action for unpaid overtime. The district court held that such waivers were enforceable, but the Sixth Circuit reversed the trial court. The Sixth Circuit equated the right to participate in a class action with the right to sue within the full limitations period allowed by the FLSA, i.e., a right deemed non-waivable under Boaz. The court reiterated, though, that its holding may have been otherwise if the case entailed an arbitration agreement. Outside of that context, however, that Killon waivers were declared void. The court concluded: “Because no arbitration agreement is present in the case before us, we find no countervailing federal policy that outweighs the policy articulated in the FLSA.” Id. at *23.

While few other courts have been presented with the precise issue as to whether the existence of an arbitration agreements is a distinction which makes a difference, the Sixth Circuit’s holdings bring into jeopardy the ability to enforce agreements which shorten limitation periods or waive class relief in the context of FLSA disputes. Such agreements may be enforceable in other contexts, but drafting carve-outs in such waivers may be cumbersome, particularly if they are tailored to only apply within the Sixth Circuit.

To be sure, the merits of the court’s holdings in these cases will likely be subject to further debate and review by courts in other circuits since there is contrary authority suggesting that these “rights” are procedural and not substantive, and are therefore waivable. At this time, though, such is not the rule in Sixth Circuit and that will likely remain the case until the Supreme Court weighs-in, if ever. Consequently, employers – particularly those within the Sixth Circuit – should avoid using such waivers unless they are part of arbitration agreements.

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