In Nesbitt v. FCNH, Inc., No. 14-1502 (10th Cir. Jan. 5, 2016) (click here for a copy of the decision), plaintiff, a student at a massage therapy school, filed a collective action lawsuit alleging Fair Labor Standards Act (FLSA) wage claims against the school. Students were required to participate in unpaid internships providing massages to the public, while the school charged the public for these massages. The school tried to block the lawsuit by relying on the student’s enrollment agreement, which contained an arbitration clause with a class action waiver. The arbitration clause also provided that each party would bear their own legal expenses, and the clause incorporated the American Arbitration Association’s commercial arbitration rules.
The district court refused to compel arbitration because the student could not effectively vindicate her rights under the FLSA. The district court found that the fee splitting provisions of the commercial arbitration rules as well as the agreement’s terms requiring each party to bear their own legal expenses, together with proof of the plaintiff’s lack of financial resources, would amount to a waiver of the FLSA’s protections.
The Tenth Circuit affirmed and found that the plaintiff could not effectively vindicate her rights in arbitration. The Tenth Circuit rejected the school’s argument regarding the arbitrator’s possible discretion to grant a waiver of arbitral fees or possible discretion to shift the burden of attorneys’ fees if the plaintiff won. The Tenth Circuit acknowledged there was some ambiguity regarding this discretion because the discretion is set forth in the arbitration rules, but the arbitration agreement does not appear to allow this discretion. The Tenth Circuit found that being at the mercy of an arbitrator’s discretion is not the same as the protections granted by the FLSA, and the risk of the arbitrator denying a plaintiff’s request regarding arbitral fees or legal fees would discourage plaintiffs from pursuing claims.