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Update on the Enforceability of Employment Contracts That Contain Mandatory Arbitration Agreements

The United States Court of Appeals for the Eighth Circuit released its Owen v. Bristol Care, Inc. opinion on January 7, 2013. The Court held that mandatory arbitration provisions containing “class action waivers” are valid and enforceable in cases arising under the Fair Labor Standards Act (“FLSA”). This means that Eighth Circuit courts must enforce employment contract provisions that prohibit class-wide arbitration of FLSA claims and require employees to individually arbitrate any claim they may have against their employer. Among claims that are affected are those for unpaid overtime and wages.

This case arose out of a class action law suit filed in a Missouri federal district court. Sharon Owen, a nursing home administrator, claimed that Bristol Care intentionally misclassified her and other similarly situated individuals as exempt employees in order to avoid paying proper overtime compensation under the FLSA. However, her employment contract with Bristol Care contained a Mandatory Arbitration Agreement. Bristol care moved to compel the case to arbitration. The district court denied Bristol Care’s motion because it believed the class action waiver provision was unenforceable. It relied on a recent decision by the National Labor Relations Board (“NLRB”) (In re D.R. Horton, Inc.) to reach the conclusion that class action waivers are invalid in FLSA cases.

The Eighth Circuit rejected the district court’s (and the NLRB’s) reasoning and held that class action waivers (and arbitration provisions) are valid in FLSA cases. The Court noted that its holding is “consistent with all of the other courts of appeals that have considered this issue and concluded that arbitration agreements containing class waivers are enforceable in FLSA cases.”

As a result of this decision, employers in the Eighth Circuit (which includes Missouri, Arkansas, Iowa, Minnesota, Nebraska, and North and South Dakota) should now be able to enforce employment contracts that require employees to individually arbitrate wage and hour claims. But employers should closely watch the progress of the D.R. Horton case. An appeal of the NLRB’s holding is currently pending in the Fifth Circuit and some labor and employment law experts believe that it could reach the Supreme Court of the United States. If the NLRB’s decision is upheld then arbitration agreements that prevent employees from seeking a class action law suit in any forum will be unenforceable. In the meantime, employers who wish to implement an arbitration program are encouraged to consult counsel to help maximize its enforceability.