Hunton Employment & Labor Perspectives

As we wrote about last month, on May 21, 2018, the Supreme Court rendered its decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1632 (2018), rejecting perhaps the largest remaining obstacles to the enforcement of class action waivers in arbitration agreements in the employment context.  The Court concluded that the class action waivers did not violate the National Labor Relations Act (“NLRA”).  Although the Court’s opinion also seemed dispositive of whether such agreements could be avoided under the Fair Labor Standards Act (“FLSA”), at least one claimant tried to continue to litigate the issue, which was disposed of last week in Gaffers v. Kelly Servs., Inc., No. 16-2210 (6th Cir. 2018).  And now the Sixth Circuit has addressed whether Epic Systems would apply to arbitration agreements with putative independent contractors who contended that they should have been treated as employees.

In McGrew v. VCG Holding Corp., Case No. 17-5474 (6th Cir. Aug. 26, 2018), the plaintiffs were exotic dancers working at a gentlemen’s club.  Like many enterprises in that industry, the club treated the dancers as independent contractors, yet the dancers argued they were employees entitled to compensation under the FLSA.  Faced with arbitration agreements signed by the plaintiffs, the district court dismissed the action, compelled arbitration, and refused the plaintiffs’ request for conditional certification.

The Sixth Circuit found the matter was governed by both Epic Systems and Gaffers and rejected the plaintiffs’ arguments that the agreements violated the NLRA and FLSA.  Similarly, the court rejected the contention that somehow the court must first decide whether the plaintiffs were covered by the FLSA before referring the matter to the arbitrator to make any further determinations.

In addition to making clear that Epic Systems applies to independent contractor disputes, the opinion has other, more practical implications.  Many plaintiffs’ attorneys have responded to Epic Systems by suggesting that they may simply file multiple arbitration requests if the claims are referred to individual arbitration, that it would be less expensive in the long run for the employer to defend a single class action case in court than to defend several individual actions in arbitration.  For that strategy to be effective, however, the plaintiffs must know the identity of those claimants willing to file individual arbitration actions.  In McGrew, the trial court had refused to grant conditional certification, including refusing to allow the sending of notices to the putative class to give potential plaintiffs the opportunity to identify themselves and opt in.  The Sixth Circuit concluded that the district court did not abuse its discretion in doing so, noting that “after Epic and Gaffers there will be no FLSA collective action against the Defendants about which the district court could facilitate notice.”  This advances the position that plaintiffs cannot seek conditional certification on the eve of referral of arbitration simply to enhance a strategy of multiple filings to coerce a settlement.  Indeed, even cases challenging independent contractor status must be referred to arbitration, and conditional certification should not be granted to increase the plaintiffs’ bargaining leverage down the road.