The Eleventh Circuit recently issued an opinion refusing to enforce arbitration agreements in connection with a Fair Labor Standards Act (FLSA) collective action. The basis for refusing to enforce the agreements was unusual for Federal Arbitration Act (FAA) cases: the district court’s oversight authority regarding party joinder in FLSA actions. See Billingsley v. Citi Trends, Inc., No. 13-12561 (11th Cir. March 25, 2014) (click here for a copy of the decision).
In this case, a store manager filed a putative collective action under the FLSA against her employer, a retail clothing store. The putative class members were store managers who were allegedly improperly designated as exempt employees and who did not receive proper overtime pay.
After the lawsuit was filed, company representatives, in a “blitzkrieg fashion,” rolled out a new ADR policy requiring all of its store managers across the country to arbitrate all disputes individually. After the filing of the lawsuit, the company sent representatives to meet with store managers in small, back rooms of the retail stores (where employees were usually investigated or interrogated) to force the managers to sign arbitration agreements and to complete fill-in-the-blank declarations regarding their job duties. The store managers were told that signing the arbitration agreement was a condition to continued employment.
The district court found that these circumstances were “rushed,” “highly coercive,” and “interrogation-like.” The district court denied the employer’s motion to compel arbitration, and the Eleventh Circuit affirmed.
The Eleventh Circuit found that the employer’s coercive roll-out of the new ADR policy was “clearly designed to thwart unfairly the right of its store managers to make an informed choice as to whether to participate in this FLSA collective action.” The Eleventh Circuit reasoned that the benefits of the FLSA’s collective action mechanism depend on accurate and timely notice to employees regarding their rights, and ex parte communications with potential members have an inherent risk of prejudice. In light of these concerns, district court judges have a broad oversight authority regarding the conduct of the attorneys and parties in order to prevent confusion and unfairness, and this authority includes the authority to manage the joinder of parties to the lawsuit. The Eleventh Circuit found that in light of this managerial authority, the district court’s refusal to enforce the arbitration agreements made under coercive conditions was an appropriate, corrective action to address the employer’s improper behavior.
Although this case involves a FLSA collective action, the Eleventh Circuit’s reasoning can arguably be interpreted more broadly to apply to class actions and even individual actions where a defendant seeks to impose an arbitration agreement in a coercive manner following the filing of a lawsuit. The Eleventh Circuit cites Rule 16 as well as Rule 23 of the Federal Rules of Civil Procedure as additional bases for a federal court’s managerial authority with respect to pending cases. If a defendant makes an improper, coercive ex parte contact following the filing of a lawsuit in order to force a plaintiff to sign an arbitration agreement, the Eleventh Circuit’s reasoning suggests a court can rely on its managerial authority to take corrective action and refuse to enforce the arbitration agreement.