Fourth Circuit Decision Allows Businesses to Avoid Collective Action FLSA Lawsuits Through Use of Arbitration Clauses

A driver for Shuttle Express, the popular transportation service for passengers going in and out of the Baltimore-Washington International Airport, sought to bring a collective action against the Company alleging violation of the Federal Labor Standards Act (“FLSA”).  Relying on the Supreme Court’s April 2011 holding in AT&T Mobility LLC v. Concepcion, the Fourth Circuit foreclosed the driver’s federal lawsuit and compelled arbitration because he signed an arbitration clause in which he waived his right to bring a claim for class-wide relief.  The case is Muriithi v. Shuttle Express, Inc.

The driver filed a lawsuit in the U.S. District Court of Maryland at Greenbelt, alleging, among other things, that Shuttle Express wrongfully classified him as an “independent contractor” to avoid paying him overtime and minimum wage, when in actuality he was an “employee” under the FLSA.  The driver sought to initiate an FLSA collective action against Shuttle Express, individually and on behalf of all similarly-situated drivers.

Shuttle Express moved to compel arbitration under the Federal Arbitration Act (FAA) because the driver signed a Franchise Agreement which contained an arbitration clause stating that any legal proceeding “shall be conducted and resolved on an individual basis only and not on a class-wide, multiple plaintiff, consolidated or similar basis.”  The Maryland District Court denied arbitration in the matter, holding that the driver’s class-action waiver was unconscionable and unenforceable under Maryland state law as it would prevent the driver from fully vindicating his statutory rights to pursue an FLSA collective action.

In reversing the District Court, the Fourth Circuit read the Supreme Court’s decision in Concepcion broadly.  Although the Concepcion case involved an issue under California state law, the Fourth Circuit held that the rule of that case overrides state laws that attempt to stand as an obstacle to the objectives of arbitration under the FAA.  In fact, according the Fourth Circuit, the Supreme Court’s Concepcion decision “plainly prohibit[s] application of the general contract defense of unconscionability to invalidate an otherwise valid arbitration agreement under these circumstances.”

The Fourth Circuit also relied on previous precedent indicating that when a court is faced with any uncertainty regarding whether an issue should be resolved by arbitration (as opposed to court proceedings), the courts should resolve the dispute in favor of arbitration.  The Fourth Circuit ultimately vacated the District Court’s decision and instructed the District Court to enter an order compelling arbitration of the driver’s claims.

In light of this decision, businesses should take a fresh look at their arbitration clauses, or consider the inclusion of such clauses in their agreements.   Arbitration clauses are increasingly enforced by the federal courts, which have often lowered the high standards imposed by state laws to guarantee procedural protections to employees.