Fifth Circuit Instructs that, When Raised, Arbitrability is a Gateway Issue that Must Be Considered Prior to Conditional Certification in FLSA Collective Actions
On October 4, 2016, the Fifth Circuit in Reyna v. International Bank of Commerce instructed district courts that when the issue of arbitrability is raised in a prompt motion to compel, it should be decided at the outset of the litigation—even prior to deciding conditional certification in FLSA collective actions. Reyna builds upon the Fifth Circuit’s recent decision in Kubala v. Supreme Production Services, Inc., ensuring that courts adhere to the strong federal policy favoring arbitration.
Carlos Reyna (“Reyna”) brought a collective action under the FLSA against International Bank of Commerce (“IBC”) contending that IBC failed to properly pay overtime to its bank tellers. IBC moved to dismiss the complaint or, in the alternative, to compel arbitration of Reyna’s claim. The district court denied the motion to compel “concluding that it could not consider the applicability of any arbitration agreement until later in the certification process for a FLSA collective action.”
IBC appealed under 9 U.S.C. § 16(a)(1)(C), which provides for immediate appeal of an order denying a motion to compel arbitration. The Fifth Circuit reversed and held that “the district court was required to address the arbitrability of Reyna’s claim at the outset of the proceedings, prior to considering conditional certification.” The court reasoned: “To hold otherwise would present a justiciability issue: a court could conditionally certify a collective action solely on the basis of a claim that the plaintiff was bound to arbitrate and was therefore barred from bringing in court in the first place.”
Reyna neither disputed that he had entered into the agreement nor raised any challenges to its validity. His only argument, raised for the first time on appeal, was that the arbitration agreement did not apply to FLSA collective actions because it explicitly referred only to “class actions.” In a footnote, the court stated it considered this argument waived. Regardless, it would be a dispute over scope—an issue that was explicitly delegated to the arbitrator in the arbitration agreement, along with the threshold question of arbitrability.
Accordingly, the Fifth Circuit reversed the district court’s judgment and remanded with instructions to refer the dispute to arbitration. This opinion reinforces the “national policy favoring arbitration” and bodes well for employers seeking to enforce arbitration agreements entered into with their employees. Reyna reminds us that employers facing collective actions should immediately investigate whether an arbitration agreement exists and, if so, promptly move to compel arbitration in order to foreclose the possibility of a premature motion for conditional certification. Reyna provides another lesson for employers when drafting arbitration agreements: it is best practice to explicitly state applicability to both class and collective actions.