Thursday, July 31, 2014

6th Cir. invalidates individual waivers of FLSA collective action participation

The wage-and-hour class or collective action lawsuit is one of, if not the, greatest risk facing employers. Many of these lawsuits are filed by disgruntled ex-employees. And, many employers seek to limit their risk by securing waivers from employees, in which employees covenant not to participate in such a lawsuit, typically in exchange for severance pay or some other consideration. Increasingly, however, these waivers have come under fire.

The most recent attack comes from the 6th Circuit, which, in Killion v. KeHE Distributors (6th Cir. 7/30/14) [pdf], held that severance-agreement waivers of one’s right to participate in an FLSA collective action are invalid.

The key facts of Killion are simple. KeHE distributes specialty ethnic and health foods to retailers. In early 2012, it discharged 69 sales reps as part of a restructuring. KeHE offered a severance package to each affected employee, in exchange for a release a claims, in addition to a promise “not to consent to become[ ] a member of any class or collective action in a case in which claims are asserted against the Company that are related in  any way to [their] employment or the termination of [their] employment with the Company.”  As part of a later-filed FLSA collective action seeking unpaid overtime, the plaintiffs sought to include the 69 laid-off sales reps and invalidate the collective action waivers set forth in their severance agreements.

The 6th Circuit held that the waivers were invalid. It concluded that any agreement that deprives one of his or her rights under the FLSA is invalid. Because the waiver deprived the employees of their right to participate in the collective action, it was invalid.

The employer argued that the at-issue agreement does not deprive anyone of any rights, since each employee is free to pursue and individual claim against the company for FLSA violations. The court, however, was not persuaded. Instead, the court concluded that because each employee’s potential claim for unpaid overtime was relatively small, the only real opportunity to pursue the alleged FLSA violation was via a collective action.
Requiring an employee to litigate on an individual basis grants the employer [a] competitive advantage…. And in cases where each individual claim is small, having to litigate on an individual basis would likely discourage the employee from bringing a claim for overtime wages.
As the Killion court points out, this decision now creates a split of authority between the 6th other Circuits. The Killion court also pointed out, however, that every other circuit that has decided this issue in the employer’s favor has done so because the agreements also contained arbitration clauses; the agreement in this case lacked that mechanism. It will be interesting to follow if this employer pursues this matter to the Supreme Court, and if that Court is interested in this important issue, or if other circuits follow Killion’s lead in the non-arbitration context.

For now, at least in the 6th Circuit, it appears that individuals waivers of the right to join wage-and-hour collective actions are dead.