Arbitration is favored by many businesses because it can be faster and less expensive than litigation. The monetary saving is particularly attractive when a losing defendant could end up paying a winning plaintiff’s legal fees. For example, under the Fair Labor Standards Act, an employee who brings an overtime claim can recover attorney’s fees. That’s costly enough in an individual case, but could be ruinously expensive in a class action suit, which gives employers a compelling interest in having these claims heard in a less expensive form -- arbitration.
Fortunately for employers, a Federal District Court of Connecticut has ruled that arbitration agreements, even those waiving employees’ right to class action suits and requiring arbitration of FLSA claims, are enforceable.
In Pompasi v. Gamestop, Pompasi was a store manager who claimed he had been improperly denied overtime. He looked to bring a collective action for unpaid wages. However, Pompasi had signed an agreement which sent all claims against his employer—including FLSA claims—to binding arbitration.
Gamestop did everything right in its arbitration agreement:
• the agreement was announced publically at a company conference;
• the language was clear and unequivocal;
• important terms, such as the waiver of the right to a class action, were highlighted;
• the agreement stated that employees accepted it in exchange for continued employment;
• the agreement did not affect substantive rights, only the venue for dispute resolution; and
• employees signed an acknowledgment of the policy.
Given all the above and the fact that federal law creates a clear presumption in favor of enforcing arbitration clauses, the court had no trouble holding that Pomposi was barred from pursuing his clauses in court. More importantly, the court barred him from bring his case as a class action, and he could only pursue his claims individually. Of course, Gamestop could still lose in arbitration, but it has already won a major victory in avoiding a class action suit.
The lesson for other employers is that arbitration agreements may be an effective tool to help them avoid the flood of overtime class action suits being brought by Plaintiffs.