Private Employment Arbitration Agreement Not Binding on Secretary of Labor When Bringing an Enforcement Action on Behalf of One Party to Agreement Against the Other

Carlton Fields

Carlton Fields

The Department of Labor brought an enforcement action against Arizona Logistics Inc. for alleged violations of the FLSA’s minimum wage, overtime, record-keeping, and anti-retaliation requirements resulting from the alleged misclassification of delivery drivers as independent contractors rather than employees. Arizona Logistics moved to compel arbitration under its agreements with the drivers, and the Arizona district court denied the motion on the authority of the Supreme Court’s decision in EEOC v. Waffle House Inc.

The Ninth Circuit Court of Appeals affirmed the denial, noting that the FAA does not provide that agreements to arbitrate are enforceable against nonparties, and the secretary of labor was not a party to the agreement. In addition, the court highlighted the fact that, under the statutory scheme enacted by Congress, the secretary is “master of [his] own case,” that the remedial statute at issue “unambiguously authorizes the Secretary to obtain monetary relief on behalf of specific aggrieved employees,” and that the enforcement action may be a vehicle to “vindicate broader governmental interests,” such as deterring other employers from violating the FLSA and protecting compliant employers from unfair wage competition. Moreover, the secretary not only controlled the case, but the employee did not even have a right to intervene in the secretary’s action once the secretary filed suit.

Quoting Waffle House, the Ninth Circuit concluded that a contrary holding “would undermine the detailed enforcement scheme created by Congress simply to give greater effect to an agreement between private parties that does not even contemplate the Secretary’s statutory function.”

Walsh v. Arizona Logistics, Inc., No. 20-15765 (9th Cir. May 18, 2021).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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