Fifth Circuit holds bank overtime claims should be arbitrated, provides guidance on employer-friendly delegation clauses.

The Fifth Circuit’s October 4 decision in Reyna v. International Bank of Commerce, 2016 WL 5799283, has some valuable information for employers analyzing arbitration agreements with employees or facing Fair Labor Standards Act (FLSA) claims. In short: (1) if facing a FLSA class claim, consider moving quickly to enforce arbitration provisions before the class certification process begins; and (2) review your arbitration agreements to ensure they contain delegation clauses consistent with the one enforced in this decision.

Background 

Reyna, a former bank teller, brought a putative class FLSA claim alleging the defendant failed to pay overtime to its bank teller employees. FLSA class actions proceed in two stages. In the first stage, the court considers whether the potential claims are sufficiently similar to send national notice of the action of possible class members. In the second stage, which occurs after discovery, the court rules on whether the claims are sufficiently similar to continue as a single action.

Reyna was a party to the bank’s dispute resolution policy, which contained an arbitration provision. The policy also stated that employees may bring class actions “only . . . upon the agreement of all the parties.”

The bank moved to compel arbitration while the FLSA action was still at the first stage. The district court denied the motion, holding that issue should not be addressed until the second stage. The appellate court reversed.

Holding 

In reversing, the Fifth Circuit held that when a defendant moves to compel a sole plaintiff to arbitrate his claim, that issue “should be decided well before the nationwide notification issue is reached.” The appellate court reasoned that result was consistent with precedent and the national policy favoring arbitration. In reaching its decision, the appellate court carefully distinguished this case from others which had allowed plaintiffs to proceed to the second stage, and which the district court had apparently relied on.

The Fifth Circuit then considered whether the court or arbitrator had the authority to determine arbitrability. To answer that question, the Fifth Circuit assessed the dispute resolution policy’s delegation clause. It held the delegation clause’s plain language gave the arbitrator authority to decide the “gateway” questions of “arbitrability, such as whether . . . the[] agreement covers a particular controversy.”

The delegation clause read: “The arbitrator(s) shall have the exclusive authority to determine the arbitrability of any dispute which the employee or the employer asserts is subject to the [Policy].” It also granted the arbitrator “the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of the [Policy].”

Readers within the Fifth Circuit should consider evaluating their own arbitration provisions to see if similar language is present.