Seyfarth Synopsis: In an important decision for employers seeking to enforce arbitration agreements and limit wage and hour exposure and related defense costs, the U.S. Court of Appeals for the Fifth Circuit reaffirmed that district courts should rule on motions to compel arbitration and related jurisdictional questions before reaching issues on FLSA conditional certification. The decision also provides a helpful roadmap for business executives and practitioners on the enforcement of arbitration agreements and the practical importance of so-called “delegation clauses.” This case marks an important win for employers and is a must read for anyone seeking to enforce an arbitration agreement in the Fifth Circuit, particularly in the wage-hour context.
While wage and hour cases continue to proliferate in state and federal courts, many employers have turned to arbitration agreements with class/collective action waivers in an attempt to stem the tide. In response, savvy plaintiff-side attorneys often file motions for class or collective-action certification very early in the litigation, hoping to obtain a ruling on those issues before the court addresses issues related to arbitration. The strategy has been successful in some jurisdictions, resulting in proverbial class- and collective-action bells that cannot be un-rung—even when the case is subsequently dismissed and moved to arbitration. Fortunately, the Fifth Circuit affirmed that, in the collective action setting, questions regarding whether the plaintiff’s claims should be arbitrated must be decided prior to any issues regarding conditional certification. Along the way, the Court provided a helpful analysis on the enforcement of arbitration agreements and the importance of delegation clauses in this context (i.e., a provision explaining that the arbitrator, not the court, must decide all issues regarding arbitrability, including whether the parties agreed to arbitrate and whether the claims at issues are subject to arbitration).
Background on the Case
In Edwards v. DoorDash, Incorporated, the plaintiff brought a purported FLSA collective action alleging that he and other delivery drivers were misclassified as independent contractors. The same day the suit was filed, the plaintiff also moved for conditional certification of a nationwide collective. In response, DoorDash filed an emergency motion to stay the briefing and any ruling on conditional certification, and it moved to compel arbitration pursuant to the plaintiff’s arbitration agreement, which included a class/collective action waiver provision and required the parties to arbitrate under the rules of the American Arbitration Association.
The district court delayed its ruling on conditional certification until it ruled on whether the lawsuit should be sent to arbitration. The district court found ultimately that the arbitration agreement was valid and enforceable, dismissed the plaintiff’s lawsuit, and compelled him to arbitrate his claims, effectively denying the motion for conditional certification as moot. The plaintiff appealed to the Fifth Circuit, arguing that (1) the court should have decided conditional certification before ruling on the arbitration agreement, and (2) the district court erred in enforcing the arbitration agreement itself. The Fifth Circuit upheld the district court in full; and in doing so, the Court provided a helpful analysis for any employer seeking to enforce arbitration agreements in the wage-hour context.
The Fifth Circuit’s Ruling
The Fifth Circuit reaffirmed its prior precedents and held that questions regarding arbitration are “threshold” matters that should be resolved “at the outset” and before any ruling on conditional certification under the FLSA. This result, according to the Court, prevents certification of a collective or class action that should not have been brought in the court in the first place, and it also aligns with the “national policy favoring arbitration embodied in the FAA.”
In determining whether to compel arbitration, courts usually undertake a two-step inquiry to determine (1) whether there is a valid agreement to arbitrate, and (2) whether the dispute falls within the scope of the valid agreement. But when there is a delegation clause, the Fifth Circuit re-affirmed, district courts should focus only on the first inquiry: whether an agreement to arbitrate was formed and whether it contains a valid delegation clause. The Fifth Circuit then noted: “If there is a delegation clause, the motion to compel arbitration should be granted in almost all cases.”
In this case, the Court found that there was a valid arbitration agreement with a valid delegation clause. Applying California law, it rejected the plaintiff’s arguments that the arbitration agreement was illusory and never formed because DoorDash allegedly never signed the contract (although it did perform under the agreement) and did not give him a personal copy of the contract to keep. The Court also rejected the plaintiff’s argument that the agreement as a whole was unconscionable because questions regarding the underlying validity of the agreement (but not its formation) were questions for the arbitrator. Finally, the Court found that the agreement contained a valid delegation clause because it incorporated the rules of the American Arbitration Association, which provide that the arbitrator has the power to rule on his or her own jurisdiction, including all issues regarding arbitrability. Because the arbitration agreement was valid and also contained a valid delegation clause, the Fifth Circuit affirmed the district court’s order compelling the plaintiff’s claims to arbitration.
Takeaways and a Word of Caution About Delegation Provisions
This decision is a welcome ruling for employers, and it re-enforces the Fifth Circuit’s willingness for enforce arbitration agreements and give deference to the parties’ intentions—and in the correct procedural order. Importantly, it should help curb attempts by the plaintiffs’ bar to spur fast rulings on conditional certification before considering arbitration and other jurisdictional issues.