Arbitration Agreements Do Not Bar DOL Enforcement Action

By Jeffrey Rhodes June 9, 2021

Arbitration agreements signed by delivery drivers cannot bar a Fair Labor Standards Act (FLSA) enforcement action by the U.S. Department of Labor (DOL) on behalf of the drivers, the 9th U.S. Circuit Court of Appeals ruled.

The DOL brought an enforcement action against a business owner and his companies, Arizona Logistics Inc., doing business as Diligent Delivery Systems, and Parts Authority Arizona LLC. The DOL alleged that the owner violated the FLSA's minimum wage, overtime, record-keeping and anti-retaliation requirements by misclassifying delivery drivers as independent contractors rather than employees.

The owner moved to compel arbitration of the DOL's enforcement action based on arbitration agreements that he and his entities entered into with the delivery drivers. The district court denied the owner's motion, concluding that the DOL could not be compelled to arbitrate based on a prior U.S. Supreme Court decision regarding enforcement actions by the U.S. Equal Employment Opportunity Commission (EEOC), EEOC v. Waffle House Inc.

On appeal, the 9th Circuit considered the enforceability of arbitration agreements under the Federal Arbitration Act (FAA). The appeals court found that the FAA addresses only the enforceability of an arbitration agreement as to the parties to the agreement. It does not provide that agreements to arbitrate are enforceable against nonparties.

The owner argued that the drivers elected to file a complaint with the DOL and thus the resulting enforcement action could be barred by their arbitration agreements. The 9th Circuit reasoned, however, that the owner was seeking to compel a nonparty government actor to arbitrate based on the agreements, which was addressed by the Supreme Court in Waffle House.

In Waffle House, the EEOC brought an enforcement action against Waffle House after it fired an employee who suffered a seizure at work. The EEOC brought an anti-discrimination enforcement action on behalf of both the public interest and the terminated employee, who was not a party to the action, and sought injunctive relief and employee-specific monetary relief.

Waffle House moved to compel arbitration of the EEOC's enforcement action because it had an arbitration agreement with the terminated employee. The Supreme Court ruled against Waffle House, reasoning that the discharged employee had no authority to control the litigation even though the EEOC sought monetary relief on his behalf. Rather, the EEOC controls its own case and the statute unambiguously authorized the EEOC to proceed in a judicial forum.

The Supreme Court found that the FAA does not compel parties to arbitrate when they have not agreed to do so and the EEOC never signed the arbitration agreement.

The 9th Circuit found that the same reasoning applied to the DOL when bringing an enforcement action under the FLSA. The FLSA gives the DOL authority to bring the actions and pay any money recovered to the employees affected.

Because the money must go to the employees affected, the owner argued, the DOL is closely associated with the employees. The owner also cited a 9th Circuit case finding that, after an employee loses an individual FLSA claim for damages in court, the DOL cannot bring an enforcement action to recover the same damages. The 9th Circuit, however, noted that the DOL could still bring an enforcement action in such a case to seek an injunction to vindicate broader government interests.

The owner noted the differences between the process of EEOC enforcement and the process of DOL enforcement. While the federal discrimination laws require employees to file a charge with the EEOC before filing an individual lawsuit, the FLSA allows employees to either file a private lawsuit or a complaint with the DOL. The 9th Circuit considered this distinction irrelevant because, like the EEOC, the DOL remains the entity that controls the claim throughout the process.

The 9th Circuit upheld the denial of the owner's motion to compel on appeal.

Walsh v. Arizona Logistics Inc., 9th Cir., No. 20-15765 (May 18, 2021).

Professional Pointer: While recent federal decisions allow employers to force employees to arbitrate disputes under federal employment statutes, the statutory schemes still allow government agencies to avoid arbitration and bring court action on behalf of employees.

Jeffrey Rhodes is an attorney with McInroy, Rigby & Rhodes LLP in Arlington, Va.



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