The Fifth Circuit “Slams Shut” Another Attempted Escape Route From Arbitration and Issues Reminder of Key Elements of an Arbitration Clause

Introduction

 On May 3, 2022, the Fifth Circuit Court of Appeals issued a 2-1 decision in In re A&D Interests, Inc., No. 22-40039 (5th Cir. 2022), reversing the district court’s order to provide notice to potential opt-in plaintiffs of the ongoing Fair Labor Standards Act (FLSA) “collective action.” Because the arbitration agreements between the defendant and each potential opt-in plaintiff required arbitration of “any claim or controversy,” and that “the only parties to the arbitration shall be” the defendant and the individual, the agreements barred participation in the instant FLSA  “collective action” in any event. Thus, ordering notice of the FLSA proceeding to such potential opt-in plaintiffs—who could not actually participate in it, due to their arbitration agreements—was therefore in error.

Background

Defendant A&D Interests operated the “Heartbreakers Gentlemen’s Club” in Dickinson, Texas. Plaintiff filed suit alleging that Defendant had misclassified her and all other dancers as independent contractors, resulting in wages being unlawfully withheld under the FLSA. Three other dancers joined the suit, and plaintiffs moved for the district court to certify the case as an FLSA “collective action,” and to order notice of the case sent to all dancers who had worked at Heartbreakers in the last three years. 

 The district court ultimately granted the motion, ordering notice to potential opt-in plaintiffs. The district court reasoned that while the arbitration agreements signed by the potential opt-in plaintiffs mandated that all claims (including FLSA claims) must be arbitrated, and that no disputes between the parties may be handled by class action lawsuits, this FLSA “collective action” was different because the bar on participating in “class actions” did not expressly bar the potential plaintiffs from participating in “collective actions”. Defendant then filed a petition for mandamus, asking the Fifth Circuit to vacate the district court’s order regarding certification and notice. 

The Fifth Circuit’s Decision

 The Fifth Circuit agreed with Defendant and vacated the order requiring notice to potential opt-in plaintiffs. While the Fifth Circuit agreed that there is difference between a “class action” under Federal Rule of Civil Procedure 23 and a “collective action” under the FLSA, the Court stated that there were still two other provisions of the arbitration agreement that would prohibit each potential opt-in plaintiff from participating in the FLSA collective action. 

• First, the potential opt-in plaintiffs had agreed to arbitrate “any claim or controversy” between themselves and Defendant.
• Second, they had also agreed that “the only parties to the arbitration shall be” the Defendant and the individual.

Thus, while the arbitration agreement’s additional prohibition on participating in a “class action” would not apply to this “collective action,” the other two provisions still apply. In short, “[e]ven if the third clause left the door open to collective actions, the other two clauses slam that door shut.” The court also noted that the second provision, requiring “one-on-one arbitration” was effective to “rule[] out collective actions, class actions, joinder, and any other similar mechanism for joining multiple parties together.”  

 The Court also addressed the district court’s reasoning that, because parties can waive the right to arbitration, ordering notice to potential opt-in plaintiffs was proper until the point at which Defendant moved to compel arbitration. The Court rejected this argument, stating that the fact that Defendant had not moved to compel arbitration was irrelevant to the issue. Instead, the Court instructed that “a district court’s focus should be on whether those receiving notice will be able to ultimately participate in the collective action.”

Because the arbitration agreement would prevent the potential opt-in plaintiffs from ultimately participating in the FLSA collective action, the Fifth Circuit granted mandamus and overtured the district court’s certification and notice order.

Takeaways

The decision in In re A&D Interests, Inc. has implications beyond the FLSA collective action context. It demonstrates that robust arbitration agreements will be enforced in the Fifth Circuit and that layering multiple broad provisions together can help overcome creative attempts by plaintiffs to manufacture gaps in the scope of the agreement. The Fifth Circuit’s use of forceful language in the opinion (“slams the door shut”) is also a good example of how courts must “rigorously enforce agreements to arbitrate according to their terms,” as instructed by the Supreme Court in Am. Exp. Co. v. Italian Colors Restaurant, 133 S. Ct. 2304, 2309 (2013).