Employers Beware! Private Arbitration Agreements Won’t Stop DOL Lawsuits

By Fiona W. Ong - Shawe Rosenthal LLP

September 30, 2021

The U.S. Department of Labor recently highlighted a federal court ruling that private arbitration agreements will not prevent the federal Secretary of Labor from bringing suit against an employer for violation of the Fair Labor Standards Act (and presumably other federal laws within the DOL’s jurisdiction, like the Family and Medical Leave Act).

Many employers require employees and independent contractors to enter into arbitration agreements, requiring all employment disputes to be arbitrated rather than litigated in court. This less formal, but still binding, process may allow for disputes to be heard and decided more quickly and less expensively than in court. It may also avoid the publicity that may come with filing a lawsuit, which is a matter of public record. The U.S. Supreme Court has affirmed that arbitration agreements in the employment context fall within the jurisdiction of, and are permitted by, the Federal Arbitration Act, which “embodies the national policy favoring arbitration.”

In Scalia v. CE Security LLC, there was a DOL investigation into the employer’s alleged misclassification of employees as independent contractors, with the resulting failure to pay overtime in violation of the FLSA. The Secretary of Labor then filed suit against the employer seeking damages on behalf of 292 individuals. The employer moved to compel arbitration based on arbitration agreements that each of these individuals had signed.

The federal court, however, rejected the employer’s argument that the DOL simply “acts on behalf” of employees in bringing suit. Rather, the court found that the DOL is not bound by individual agreements to which it is not a party. Moreover, the court cited a federal appellate court decision finding the Equal Employment Opportunity Commission’s ability to bring suit unhampered by a private employer-employee arbitration agreement for the principle that “agreements of private parties cannot frustrate the power of a federal agency to pursue the public’s interests in litigation.”

In this case, the court recognized that the DOL may have interests other than providing make-whole relief to the individuals – such as deterring other employers from violating the FLSA and protecting complying employers from unfair competition by noncomplying ones.

Emphasizing this point, the Regional Solicitor of Labor Jeffrey Rogoff is quoted in the DOL’s press release as stating, “This is a significant and favorable decision regarding the U.S. Department of Labor’s ability to pursue legal actions and relief for employees in the name of the public interest…. The Office of the Solicitor of Labor prioritizes its pursuit of cases where employees do not have other avenues of relief when they are forced to arbitrate claims against their employers out of court. This decision affirms the Secretary of Labor’s independent authority to bring claims as the Secretary deems appropriate, even where employees may not because of forced arbitration agreements.”