Construction Workers’ Overtime Claims Subject To Arbitration Provision

Employers often would prefer an arbitral forum for employee-related disputes because they are perceived as a venue that typically delivers a fair, efficient and cost-effective resolution for such disputes. Employment agreements that require arbitration of claims on an individual basis, including Fair Labor Standards Act (FLSA) claims, have been subject to numerous challenges, including that such provisions violate the National Labor Relations Act. On January 1, 2014, the U.S. District Court for the Northern District of Texas, in Pacheco v. PCM Constr. Servs., LLC, N.D. Tex., No. 3:12-cv-04057, held that the seven disgruntled construction workers’ FLSA claims against their employer for unpaid overtime must be arbitrated. Including such a provision, including a waiver of the right to pursue claims as a class representative, in your employee contracts certainly is worth considering in light of the courts’ recent willingness to enforce such clauses.

The FLSA establishes, among other things, overtime pay standards affecting employees in the private sector as well as federal, state and local government employees. The construction workers claimed that there was a company-wide practice of not paying overtime in violation of the FLSA, and that there are 40 to 50 similarly situated employees. These workers had each signed employment agreements which required them “to submit any dispute between employee and the company, or any of the company’s employees, representatives, or agents, to mandatory, binding arbitration.” The construction workers argued that the arbitration provision was unenforceable because it restricted class arbitration, it was unconscionable and it didn’t permit an award of liquidated damages, as available under the FLSA, and that their employer had waived the right to compel arbitration. Judge Sam A. Lindsay rejected their arguments, compelling arbitration and dismissing the civil action with prejudice.

Note, however, that the Ninth Circuit Court of Appeals in Wal-Mart Wage & Hour Empl. Practices Litig. v. Class Counsel & Party to Arbitration, recently held that a non-appealability clause in an arbitration agreement that eliminates all federal court review of arbitration awards, including review under § 10 of the Federal Arbitration Act, is not enforceable.

Additional Sources: U.S. Department of Labor; National Labor Relations Board; US Supreme Court Gives Green Light To Class Action Waivers In Consumer Contracts; Rials v. Apex Bulk Commodities Inc., Los Angeles Superior Court Case No. BC527219 (Judge Johnson’s tentative ruling confirmed that she was going to enforce the arbitration agreement, leaving it to the arbitrator to decide if the plaintiffs’ claims could proceed as a class arbitration or as individual arbitrations because the contract contains no language on the matter)

Photo: Sam Greenhalgh, Taken on Sep. 8, 2007 – Creative Commons