As we’ve reported here and here, recent decisions from the US Supreme Court, federal appellate courts, and more recently, even the California Supreme Court (see here) have clarified that class and collective action waivers in arbitration agreements, including those that waive employees’ right to bring a claim under the federal Fair Labor Standards Act (FLSA) on behalf of themselves and a group of similarly situated employees, are enforceable. Employers favor arbitration agreements containing these waivers because they require an employee who, for example, believes that he or she has a claim for unpaid wages, to bring that claim only on an individual basis, and in arbitration, rather than in court and on behalf of not only the individual employee filing the lawsuit, but perhaps dozens, hundreds, or even thousands of employees.
In Killion v. KeHE Distributors, Inc. [pdf], the Sixth Circuit Court of Appeals addressed a related, but significantly different situation involving class and collective action waivers. In that case, the employer terminated approximately 70 sales representatives as part of a restructuring. It offered the employees severance pay as part of a separation package. In return, the employer requested that the employees sign release agreements that, among other things, included a waiver of the right to bring collective action claims under the FLSA. Not long after the ink was dry on these agreements, several employees sued the employer, asserting a collective action claim on behalf of themselves and the other terminated sales representatives for unpaid overtime compensation under the FLSA.
The employer argued that the collective action waiver in the separation agreements signed by the employees prohibited them from bringing the collective action FLSA lawsuit. It pointed to the cases we’ve discussed in prior blog entries – American Express, D.R. Horton, Inc., and others – enforcing collective action waivers as part of agreements to arbitrate claims. The court, however, disagreed. It relied on the fact that the separation agreements here contained no agreement to arbitrate any claims, only a waiver of the right to bring a collective action claim. It explained that in the absence of any agreement to arbitrate, the court’s prior decision in Boaz v. FedEx Customer Information Services, Inc. [pdf] applied. In that case, the court held that restrictions on FLSA rights are unenforceable, and that an employee cannot waive their right to participate in a collective action. Thus, the court in Killion reversed the lower court’s ruling that held that the collective action waivers in the separation agreements were enforceable and prevented the sales representatives from bringing a collective action claim under the FLSA.
This case is significant in that it demonstrates that the rationale that courts have relied upon to approve and enforce class and collective action waivers – the strong federal policy of enforcing agreements to arbitrate under the Federal Arbitration Act – is not present when there is no agreement to arbitrate. Accordingly, it appears that, at least in the Sixth Circuit, an FLSA collective action waiver is only enforceable when it is part of an arbitration agreement, and is not enforceable as part of a separation or other release agreement when arbitration of claims is not agreed upon as an alternative dispute resolution procedure.