Unreported opinion will also impact potential counterstrategy

Just three months ago, the Supreme Court rendered its decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1632 (2018), in which it rejected perhaps the largest remaining obstacles to the enforcement of class action waivers in arbitration agreements in the employment context, concluding that they did not violate the National Labor Relations Act (NLRA). We blogged that decision here. Although the Court’s opinion also seemed dispositive of whether such agreements could be avoided under the Fair Labor Standards Act (FLSA), at least one claimant tried to continue to litigate the issue, one disposed of last week in Gaffers v. Kelly Servs., Inc., No. 16-2210 (6th Cir. 2018). We blogged that decision here. And now the Sixth Circuit has addressed whether Epic Systems would apply to arbitration agreements with putative independent contractors who contended that they should have been treated as employees.

In McGrew v. VCG Holding Corp., Case No. 17-5474 (6th Cir. Aug. 26, 2018), the plaintiffs were what the court described as “exotic dancers” working at a “gentlemen’s club.” Like many enterprises in that industry, the club treated the dancers as independent contractors, yet the dancers contended that they were in actuality employees entitled to compensation under the FLSA. Faced with arbitration agreements signed by the plaintiffs, the district court dismissed the action, compelled arbitration and refused the plaintiffs’ request for conditional certification.

In a brief, unreported decision, the Sixth Circuit found the matter governed by both Epic Systems and Gaffers and rejected the plaintiffs’ arguments that the agreements violated the NLRA and FLSA. Similarly, the court rejected the contention that somehow the court must first decide whether the plaintiffs were covered by the FLSA before referring the matter to the arbitrator to make any further determinations. None of this should come as a surprise in the wake of Epic Systems.

Although this opinion makes it clear that Epic Systems applies to independent contractor disputes, we likely would not have blogged it as an unreported decision but for a fourth issue it reached. Many plaintiffs’ attorneys have responded to Epic Systems by suggesting that they may simply file multiple arbitration requests if the claims are referred to individual arbitration, the implication being that it would be cheaper in the long run for the employer to defend a single case in court than to defend many in arbitration. For that strategy to work, however, the plaintiffs must have the identity of those claimants willing to do so. In the McGrew case, the trial court had refused to grant conditional certification – more accurately, it refused to allow the sending of notices to the putative class to give potential plaintiffs the opportunity to identify themselves and opt in. The Sixth Circuit concluded that the district court did not abuse its discretion in doing so, noting that “after Epic and Gaffers there will be no FLSA collective action against the Defendants about which the district court could facilitate notice.” This more than suggests that plaintiffs cannot seek conditional certification on the eve of referral of arbitration simply to enhance a strategy of multiple filings to coerce a settlement.

The bottom line:

Even cases challenging independent contractor status must be referred to arbitration, and conditional certification should not be granted to increase the plaintiffs’ bargaining leverage down the road.