The controversy over whether employees must arbitrate wage claims continues with full force. A federal judge has just sent to arbitration a claim by an employee that the Company violated the Fair Labor Standards Act by not paying him overtime pay. The Court found that the parties had “clearly and unmistakably” agreed that an arbitrator should decide whether the allegations are arbitrable. The case is entitled Smith v. Kellogg Co. et al., and was filed in federal court in the District of Nevada.

The district judge granted a motion to compel arbitration. The Court found that the retail sales representative signed an employment agreement that contained a mandatory arbitration clause under the Judicial Arbitration Mediation Services rules, which leave the determination of arbitrability to the arbitrator.

The judge noted several cases involving the issue of whether the sophistication of the parties matters in deciding whether a delegation of arbitrability is clear and unmistakable. The judge, however, referred to language in another decision holding that the parties do not need to be sophisticated to conclude that the incorporation of arbitrator rules “constitutes clear and unmistakable evidence of the parties’ intent” to delegate the decision about arbitrability.” As the Court aptly noted, “… the requisite intent to delegate is present in the continued employment/incentive agreement in the incorporation of the JAMS rules, which delegate the determination of arbitrability to the arbitrator.”

The judge also noted that the Agreement contained a clause telling the employee to consult with an attorney. The document also gave at least 21 days to consider the Agreement prior to signing it and there was, very generously, a seven-day grace period to revoke the decision made previously to agree to the arbitration procedure. The judge concluded that although “ Smith has raised a slight inference of procedural unconscionability [he} has not made a showing of substantive unconscionability as to the delegation provision. Therefore, the delegation provision is enforceable and I grant the motion to compel arbitration.”

The Takeaway

An arbitration provision such as this one is an escape mechanism for the employer in an overtime or FLSA context. It must be drafted properly, with all the procedural safeguards necessary and as may need to vary from state to state but it can preclude federal litigation.

Which is always a much more expensive proposition.