Legal Alert: Eighth Circuit Requires Arbitration Of FLSA Claim And Rejects Board Decision In D.R. Horton

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Executive Summary:  The Eighth Circuit recently upheld the validity of a mandatory arbitration agreement containing a class action waiver and ordered the arbitration of an employee's collective action under the Fair Labor Standards Act.  See Owen v. Bristol Care, Inc. (Jan. 7, 2013).  In reaching this decision, the Court rejected the analysis of the National Labor Relations Board (NLRB) in D.R. Horton, Inc., which held that class action waivers violate employees' rights under the National Labor Relations Act (NLRA).

Background

Bristol Care, the operator of a residential care facility for elderly residents, hired Sharon Owen as an administrator for its operation in Missouri.  The parties executed a Mandatory Arbitration Agreement ("MAA") to resolve, among other things,  "… claims or controversies for which a federal or state court or other dispute resolving body otherwise would be authorized to grant relief …" against the company.  The MAA contained an express reference to "claims for wages or other compensation" under the FLSA.  It also included an express waiver prohibiting the parties from arbitrating claims on behalf of a class.  The MAA did not, however, require the parties to waive the right to file a complaint with the EEOC or "any other federal, state or local agency designated to investigate complaints of harassment, discrimination, other statutory violations, or similar claims."

Owen, who was classified as an  administrative employee of Bristol Care, brought an action in 2011 on behalf of herself and similarly situated current and former employees for misclassification. Owen claimed the company improperly classified her as an exempt employee for overtime purposes and failed to properly compensate her for time worked in excess of forty hours per week.  Bristol Care  filed a motion to compel arbitration under the MAA, which the  district court denied.  On appeal the Eighth Circuit reversed the district court and ordered the parties to arbitrate the dispute.  Owen v. Bristol Care, Inc., 2013 U.S. App. LEXIS 356 (Jan. 7, 2013)

Lower Court Decision

In denying the motion to compel arbitration, the lower court distinguished the Supreme Court's decision in AT&T Mobility LLC v. Concepcion, saying it was a consumer case and not controlling precedent in employment situations.  In support for its decision denying the motion to compel arbitration, the district court relied in part  on D.R. Horton, Inc., and held that class actions waivers are invalid in FLSA cases because the FLSA provides for the right to bring a class (or collective) action.

Eighth Circuit's Decision

The Eighth Circuit reversed the lower court and ordered the parties to arbitrate the claim.  The Court held that nothing in the text or legislative history of the FLSA indicates a congressional intent to bar employees from agreeing to arbitrate FLSA claims individually, nor is there an "inherent conflict" between the FLSA and the Federal Arbitration Act (FAA).  Further, the Court held that "there is no inconsistency between either the FLSA text or its legislative history and the conclusion that arbitration agreements containing class waivers are enforceable in cases involving the FLSA."

The Court also rejected Owen's argument that the NLRB's decision in D.R Horton provides further evidence of a conflict between the FLSA and the FAA.  In D.R. Horton, the Board held that class action waivers violate employees' right to engage in protected concerted activity under Section 7 of the NLRA.  The Eighth Circuit found the Board's analysis unpersuasive because the MAA in this case "does not preclude an employee from filing a complaint with an administrative agency such as the Department of Labor…The Equal Employment Opportunity Commission, the NLRB, or any similar administrative body. Cf. Gilmer, 500 U.S. at 28…Further, nothing in the MAA precludes any of these agencies from investigating and, if necessary, filing suit on behalf of a class of employees."

Additionally, the Court held that even if the Board decision had addressed a class waiver similar to that contained in the MAA, the Court  "would still owe no deference to its reasoning" because, while the Board's construction of the NLRA is entitled to deference,  "the Board has no special competence or experience in interpreting the Federal Arbitration Act."  The Court also held that it is "not obligated to defer to [the Board's] interpretation of Supreme Court precedent." 

The Court went on to list a number of  district court decisions which similarly have declined to follow the NLRB's interpretation prohibiting class action waivers in arbitration agreements as well as similar decisions of other courts of appeal that have concluded that arbitration agreements containing class action waivers are enforceable under the FLSA. 

Finally the Court directed the parties to comply with the arbitration agreement, including the class action waiver, noting that the Supreme Court has affirmed class action waivers in other cases involving the arbitration of statutory rights.  The Court noted that the U.S. Supreme Court in Gilmer:

upheld a similar class action waiver in an employment contract brought under the Age Discrimination in Employment Act…  Thus the Court's conclusion in Gilmer forecloses the argument that Supreme Court precedent upholding the enforceability of class waivers is limited to the consumer context.

Employers' Bottom Line:   The Eighth Circuit's decision expressly rejects the NLRB's interpretation that the NLRA prohibits the enforcement of class action waivers in arbitration agreements and confirms that the FAA is to be considered in light of the federal policy favoring arbitration.  The requirement under Section 2 of the FAA for enforcement of arbitration agreements does not permit federal agencies to intervene into the contractual agreement for arbitration absent express Congressional authority granting such right to the agency.  At the same time, this MAA recognized that employees have an independent right to file a claim for violation of statutory rights with the appropriate federal agency and did not prohibit such claims. 

If you have any questions regarding this Alert, or other labor or employment related issues, please contact the FordHarrison attorney with whom you usually work or the author of the Alert, John Allgood, jallgood@fordharrison.com, who is an attorney in our Atlanta office.