Labor & Employment Law Daily Arbitrator’s decision allowing collective arbitration of FLSA overtime claims upheld
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Monday, January 20, 2020

Arbitrator’s decision allowing collective arbitration of FLSA overtime claims upheld

By Marjorie Johnson, J.D.

The court also declined to reverse its earlier decision sending the issue to the arbitrator in the first place, refusing to reject a recent Tenth Circuit decision which had ruled that incorporation of the AAA Rules showed the parties intended for the arbitrator to decide the issue.

An arbitrator did not exceed his authority when he interpreted the express words of an employment agreement’s arbitration provision as authorizing a group of employees to arbitrate their FLSA overtime claims on a collective basis. Denying the employer’s motion to vacate the arbitrator’s order under the highly deferential standard, a federal district court in Kansas also rejected the employer’s contention that the court erred by ruling that the issue of the arbitrability of the collective action must be decided by the arbitrator and not the court, since the parties’ incorporation of the AAA Rules in their agreement provided “clear and unmistakable evidence” that they intended to delegate the issue to the arbitrator (Torgerson v. LCC International, Inc., January 9, 2020, Crabtree, D.).

Arbitrability issue sent to arbitration. About three years ago, five employees who worked for the employer as migration analysists filed this FLSA overtime lawsuit alleging they were improperly classified as exempt. In August 2016, the court granted in part the employer’s motion to compel arbitration based on a mandatory arbitration clause contained in their employment agreements. In its ruling, the court denied the employer’s request that it decide whether the agreement permitted collective arbitration, ruling that the arbitrator must decide that issue. For the same reason, the court also declined to decide the employees’ motion for conditional certification.

Arbitrator allows collective action. The arbitrator subsequently determined that the arbitration clause was valid and enforceable and encompassed the FLSA claims. Dismissing the employer’s motion for a final clause construction award, he also concluded that the agreement authorized the employees to proceed on a collective basis. The district court subsequently denied the employer’s petition to vacate that order, ruling that the arbitrator did not exceed his authority.

Denies motion to decertify. Back in arbitration, the employer moved to decertify the FLSA collective arbitration, relying upon the Supreme Court’s recent decision in Lamps Plus, Inc. v. Varela . The arbitrator denied the motion, explaining that Lamps Plus was inapplicable since it was “explicitly limited” to the issue of whether an “ambiguous agreement” can provide the necessary contractual basis for compelling class arbitration. Here, however, the “unambiguous” agreement established that the parties had agreed to arbitrate their claims on a collective basis.

Employer tries again in federal court. Now at issue was the employer’s motion to vacate the arbitrator’s order denying its motion to decertify FLSA collective arbitration and to order the employees to arbitrate their claims individually. First, the employer argued that whether the agreement authorized collective arbitration was a “gateway question” for the court to decide and that the court should never have compelled arbitration of that issue. Second, it claimed that the arbitrator exceeded his authority by ruling that the agreement authorized collective arbitration.

Issue correctly sent to arbitrator. The court first found that it did not err by initially holding that the arbitrator should decide whether the agreement authorized collective arbitration of the employees’ FLSA claim since the agreement called for binding arbitration performed “in accordance” with the AAA Rules. At the time, the court relied on Hendrick v. BNC National Bank, where another Kansas district court held that the arbitrator must determine whether the plaintiff could arbitrate his FLSA claim collectively since the parties’ agreement incorporated the AAA Rules, which provided “clear and unmistakable delegation of questions of arbitrability to the arbitrator” including “whether the arbitration clause allows for class arbitration.”

New Tenth Circuit case. Though the Tenth Circuit recently reached the same conclusion in DISH Network LLC v. Ray, the employer urged the district court to instead apply the reasoning of other Circuits that had determined that merely incorporating the AAA Rules was insufficient to delegate questions of arbitrability to the arbitrator. But because the Supreme Court has not yet decided this issue, the court was bound by the Tenth Circuit precedent. Therefore, it correctly determined that the parties’ incorporation of the AAA Rules in their agreement provided clear and unmistakable evidence that the parties intended to delegate the question whether plaintiffs may assert FLSA collective action claims to the arbitrator.

Arbitrator didn’t exceed authority. The court also rejected the employer’s contention that the arbitrator exceeded his authority by ruling that the agreement allowed the employees to arbitrate their FLSA claims on a collective basis. Specifically, the company argued that the arbitrator did not correctly interpret the parties’ contract when he determined that its express words were unambiguous and allowed the arbitration to proceed on a collective basis. Therefore, the arbitrator’s decision contravened the Supreme Court’s holding in Lamps Plus that the FAA bars an order requiring class arbitration when an agreement is “ambiguous” about the availability of such an arbitration.

However, the Supreme Court has explained that even if an arbitrator’s misinterpretation of a contract amounts to a serious error, that doesn’t provide sufficient reason for a court to vacate an arbitration award. Rather, the arbitrator’s construction holds, “however good, bad, or ugly.”

Here the arbitrator’s decision said that he interpreted the contract to authorize collective arbitration based on its express words. Thus, while the employer contended that his conclusion had no contractual basis, it was only attacking the performance of his contractually-delegated duty of interpreting the parties’ agreement. Accordingly, applying a standard of review that “is among the narrowest known to the law,” the court concluded that he did not exceed the scope of his delegated authority when he interpreted the express words of the parties’ agreement to allow the collective arbitration of the FLSA claims.

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