An important new federal District Court case in Connecticut decided yesterday, D’Antuono v. Service Road Corp., (download here) has shown that to be the case exactly.
But, coming from the school of “you can’t make this stuff up”, it is remarkable that the case that is deciding this issue is one grounded in the claims of “exotic dancers” who allege that they were misclassified as independent contractors instead of employees.
(How can the strip club claim that the individuals were independent contractors? While it is not relevant to the court’s decision here, the dancers signed “leases” to the “performance space”. Within those leases were arbitration provisions. The Court did not decide that issue, though if you’re interested, I discussed a similar case back in January here. )
What is important for all employers to know is that here, the central issue in this case was whether the agreement to arbitrate (found in a lease agreement between the exotic dancer (as “tenant”) and the strip club (as “landlord”) was enforceable. The Court said that it was. In doing so, the Court forced the plaintiffs to arbitrate their FLSA claims and remove the specter of a collection action, finding that the plaintiffs gave up that right in their case.
The Court noted that the Supreme Court’s decision changed the landscape of claims regarding the enforceability of arbitration clauses. It stated that “it would be hard to dispute that AT&T Mobility and other recent United States Supreme Court decisions represent a shift in federal law regarding the enforceability of arbitration agreements.” The Court said that AT&T Mobility appears at adds with the reasoning of various cases at the Court of Appeals — and may justify a different result than before.
The Court concluded that it could find nothing in Connecticut state law that would render the agreement “unconscionable” and therefore unenforceable, even though it contained collective action and class action waivers and cost- and fee-shifting provisions.
The Court said that even if state law held the agreement to be unconscionable as a matter of state law, “it would be incumbent upon this Court to consider the United States Supreme Court’s preemption analysis in AT&T Mobility.” In such an instance, the Court said, “such a state law rule, if it existed, might well be preempted by the FAA.”
Importantly, the court noted that “This court reads the AT&T Mobility decision as casting significant doubt on virtually any “device [or] formula” which might be a vehicle for “judicial hostility toward arbitration”.
The case then discussed whether under federal common law the agreement might be void. But because the strip club withdrew its enforcement of fee- and cost-shifting provisions, it said it did not have decide that issue.
But for those employers who are looking to enforce similar provisions, the Court’s analysis is invaluable and suggests that AT&T Mobility may invalidate even federal principles.
[T]he Court knows of no principled reason why federal law rules that have essentially the same purpose and effect as the Discovery Bank [the California rules that were struck down] rule would continue to be permissible after AT&T Mobility …
It is at least arguable that after AT&T Mobility the federal common law of arbitrability standards…may require some modification to ensure that they will not be “applied in a fashion that disfavors arbitration”.
What’s the Takeaway for Employers? This case represents a path for employers who wish to use arbitration as a means of avoiding litigation. A well-drafted arbitration provision now appears to be a viable path to not only avoiding claims under wage and hour laws, but also to preventing collective or class actions.
Employers wishing to implement such provisions must be careful, however, to draft them in a way that will overcome judicial scrutiny. Proper legal advice is crucial to this process more than ever.
(Incidentally, Rick Hayber, who helped represent the plaintiffs, has a blog post about AT&T Mobility up on his blog this morning.)