Court of Appeals Disallows Forced Arbitration of FLSA Claims

Court of Appeals Disallows Forced Arbitration of FLSA Claims

NEW YORK — A court of appeals ruled that two employees of Cellular Sales, a company selling Verizon Wireless service plans and merchandise, are not required to arbitrate their Fair Labor Standards Act (FLSA) claims against their employer. The employees’ claims arose during a period in which the company said they were independent contractors. For about 18 months the two employees worked under a company-required arrangement in which they formed their own companies that Cellular Sales contracted for their services in its retail stores. According to those sales agreements, the two employees were independent contractors and expressly disclaimed any employment relationship.

Misclassification Claims

The two employees, along with other workers, sued Cellular Sales alleging they were misclassified. Therefore, the employees claimed that the company owed them minimum wage, overtime pay, and other benefits. When workers are considered independent contractors, they are not covered by important protections such as minimum wage, overtime, unemployment insurance, and workers’ compensation. FLSA’s definition of “employ” guides the determination of whether workers are employees or independent contractors. Because FLSA defines “employ” broadly, most workers are employees under FLSA.

Mandatory Arbitration Clause

The two employees signed a compensation agreement that contained an arbitration clause that stated they were employees and all employment-related disputes must be submitted to arbitration. Cellular Sales moved to compel arbitration of the employees’ claims for the 2010-2011 period, citing the compensation agreements the parties signed in January 2012, which said they were employees and all employment-related disputes must be submitted to arbitration. However, the court held that an arbitration clause contained in compensation agreements that the employees signed in January 2012 does not apply to the workers’ claims for wages and benefits before that date.

The court said the company can not rely on the arbitration clause in the compensation agreements, which expressly defined the workers as employees, to require arbitration of claims arising when they were covered by a different agreement. Those prior agreements between Cellular Sales and the workers’ corporate entities expressly dubbed the workers as independent contractors and did not require arbitration to resolve disputes, the court said.

Misclassification can deprive individuals of protections under FLSA. Additionally, courts construe arbitration clauses narrowly and will not apply them beyond their temporal scope. You should call (855) 754-2795 or complete the Free Unpaid Overtime Case Review form on the top right of this page if you feel that you have been misclassified as an independent contractor by your employer, or if you are being forced to arbitrate wage claims. Our top-rated team of wage lawyers will evaluate your situation to determine your best course of action. We will also determine if it is in your best interest to file a lawsuit against your employer. There are strict time limitations for filing, so it is important that you call our experienced attorneys today.

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