Justices Deny Review of Case Allowing FLSA Collective Action Despite Waivers

Daily Labor Report® is the objective resource the nation’s foremost labor and employment professionals read and rely on, providing reliable, analytical coverage of top labor and employment...

By Kevin McGowan

April 6 — Denying a petition filed by a specialty food provider, the U.S. Supreme Court April 6 declined to review a federal appeals court ruling that employees' rights to pursue a Fair Labor Standards Act collective action can't be waived in a separation agreement that lacks an arbitration clause.

Without comment, the justices left intact a U.S. Court of Appeals for the Sixth Circuit decision that sales representatives terminated by KeHE Distributors LLC during a corporate restructuring could pursue an FLSA collective action for overtime pay even if they had signed separation agreements that included collective action waivers (761 F.3d 574, 23 WH Cases2d 16 (6th Cir. 2014).

The Sixth Circuit's ruling that workers can't waive FLSA collective actions conflicts with the decisions of seven other federal appeals courts as well as the Supreme Court, KeHE Distributors argued in seeking review.

The Sixth Circuit misread those decisions as resting on the Federal Arbitration Act, when those courts actually held the FLSA creates no substantive right to collective lawsuits that employees can't waive in exchange for monetary consideration, KeHE said.

Opposing review, the former employees said no circuit split exists because all the cases cited by KeHE involve collective action waivers in arbitration agreements that foreclose class claims in arbitration. Courts enforced those class action waivers to vindicate an “emphatic federal policy in favor of arbitral dispute resolution,” a factor not present in the KeHE separation agreements, the former employees said.

The Sixth Circuit also erred by reversing summary judgment for KeHE on whether its former employees fall within the FLSA's “outside sales employee” exemption, the company said. Instead, the appeals court said triable issues remained on whether the company representatives actually made sales and if making sales was their primary duty.

The Sixth Circuit reasoned the former employees don't necessarily fall within the FLSA's outside sales exemption because they merely were replenishing inventory within the retail stores served by KeHE rather than single-handedly making new sales and increasing KeHE's sales volume.

But such a restrictive reading of the outside sales exemption can't be squared with the statute, Labor Department regulations or the Supreme Court decision in Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156, 19 WH Cases2d 257 (2012), KeHE said.

The notion that sales employees must always be making new sales or not acting as part of a team involved in sales to fall within the FLSA exemption runs counter to modern-day workplace realities, KeHE said.

Resolve Conflicts, Petitioner Urges 

The Sixth Circuit's “refusal to enforce a bargained-for agreement” between an employer and its employees to pursue any FLSA claim only on an individual basis conflicts with contrary decisions from the Second, Third, Fourth, Fifth, Eighth, Ninth and Eleventh circuits, KeHE said.

Those courts all have held the FLSA doesn't provide for a “non-waivable, substantive right” to bring collective actions, KeHE said. Rather, the other circuits have agreed FLSA Section 16, which provides for collective actions, is a procedural device that individuals may waive for valid consideration, such as the bonuses paid to KeHE employees who signed the separation agreements containing the waiver, the company said.

The Sixth Circuit reasoned the other circuit decisions all involved class and collective action waivers contained in arbitration agreements, bringing the Federal Arbitration Act into play.

But the other circuits' decisions turned on interpretation of the FLSA, not the Federal Arbitration Act, KeHE said. Those courts found nothing “in the text, legislative history or purpose of the FLSA” to suggest Congress “intended to confer a non-waivable right” to class litigation of FLSA claims, the company said.

“Moreover, none of the [other circuits'] decisions turns on anything unique about arbitration,” KeHE said.

High Court Precedent Invoked 

The Sixth Circuit decision also conflicts with Supreme Court precedent, including AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), that courts must place arbitration agreements “on the same footing” as other contracts and enforce them according to their terms, KeHE said.

“Contrary to the Sixth Circuit's reasoning, therefore, arbitration agreements are not special,” KeHE said. “They are like any other contract.”

The Supreme Court reaffirmed in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), that waiver isn't precluded simply because a statute permits a class or collective action, KeHE said.

In addition, several federal courts correctly have said if an individual can opt into an FLSA collective action, surely a worker also can choose to waive participation in group lawsuits under the statute, KeHe said.

Individualized litigation won't preclude effective vindication of an employee's FLSA rights, KeHE said. But even if the expense of pursuing an individual FLSA claim were high, Italian Colors establishes “the fact that it is not worth the expense involved in pursuing a statutory remedy does not constitute the elimination of the right to pursue that remedy,” KeHE said.

The court's failure to grant review likely will have “an immediate, negative impact on employer-employee relations,” KeHE warned. If the Sixth Circuit decision remains intact, affected employers and employees would have to agree to arbitration and entirely abandon the judicial forum in order to secure an effective waiver of FLSA collective actions, the company said.

“But while some employers have chosen to implement an arbitration program, others—for reasons such as avoiding costly arbitrator fees and retaining full appellate rights—still prefer to have their disputes resolved in court,” KeHE said. “Likewise, many employees prefer a judicial forum.”

“And, whatever choice they make, employers and employees have a strong interest in having their choice of forum respected and enforced,” the company said.

Cardelle B. Spangler of Winston & Strawn LLP in Chicago was counsel of record for KeHE Distributors.

No Basis for Review 

Opposing review, the former employees said the Sixth Circuit correctly decided both the waiver issue and the outside sales exemption issue. In addition, the interlocutory nature of the appeals court ruling counsels against Supreme Court review, the former employees said.

Contrary to KeHE, the former employees said the Sixth Circuit creates no circuit conflict because all the decisions cited by the company “arose in the context of an arbitration agreement that specifically excluded collective actions in the arbitration context.”

Those other circuits relied upon the federal policy favoring arbitration to uphold the collective action waivers, not a holding that the FLSA permits such waivers even when no arbitration agreement is involved, the former employees said.

“The Sixth Circuit recognized it was the first circuit to address the collective action waiver outside the arbitration context,” the former employees said. “Tellingly, KeHE does not argue otherwise. In sum, no circuit split exists, and review should be denied.”

The Sixth Circuit also didn't err in finding that the former sales employees don't necessarily fall within the FLSA's outside sales exemption, the ex-employees said.

Rather, the appeals court permissibly found that when employees spend a “vast majority” of their time performing promotional work, an issue arises whether such work was “incidental” to “their own sales” or to sales made by others, the former employees said.

The Sixth Circuit found sufficient evidence to suggest KeHE account managers were “making the sale” in determining the items that could be sold to specific retail customers, the price of those items and the sales volume, the former employees said.

The Supreme Court's decision in Christopher, which found pharmaceutical sales representatives did fall within the outside sales exemption, can be distinguished, the former KeHE employees.

KeHE provides no support for its argument the Sixth Circuit's decision regarding the exemption “destroys the predictability of employee classifications for sales departments in other companies,” the former employees said.

The justices should decline to review an interlocutory ruling in a fact-specific case, the former employees said.

Robert A. Bunda of Bunda Stutz & DeWitt PLL in Perrysburg, Ohio, was counsel of record for the former employees.

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Summaries of labor and employment law cases denied Supreme Court review appear in Section E.