In Chen v. Kyote Sushi, Inc., the Court denied a motion for conditional certification of an FLSA collective in favor of compelling arbitration on an individual basis. See No. 15-CV-7398 (DLI) (JO) (E.D.N.Y. Sept. 22, 2017). The Chen plaintiffs alleged a variety of claims for unpaid wages and contended that they should be permitted to pursue their claims in court despite each having executed arbitration agreements that required arbitration of a variety of claims, including those arising under the FLSA, on an individual basis. The plaintiffs alleged that the arbitration agreements were invalid insofar as they were individually called into a manager’s office to sign them under duress and with the threat of termination and that they did not understand what, exactly, it was that they were signing.
The Court recounted the general principles underlying the Federal Arbitration Act and noted the “liberal federal policy favoring arbitration.” The Court framed the threshold question as “whether the parties have indeed agreed to arbitrate.” Upon being satisfied that there was an agreement to arbitrate, the Court stated it would then consider: (i) the scope of the agreement; (ii) whether Congress intended the causes of action at issue to be “nonarbitrable; and (iii) if any claims are nonarbitrable, whether to stay the balance of the proceedings pending arbitration. The Court stated that the relevant standard to be applied was “similar to that applicable for a motion for summary judgment.”
The Court found that all of the criteria were met to compel individual arbitration. First, the Court found that the plaintiffs signed the agreement and were therefore bound to its terms “whether they read them or not” because “[i]gnorance through negligence of inexcusable trustfulness will not relieve parties from their contract obligations.” Second, the Court noted that the agreement covered the FLSA claims the plaintiffs advanced since it was expressly referenced in the agreement. Third, the Court noted that the prohibition against proceeding collectively was permissible and required individual arbitration. With respect to the latter issue, the Court rejected the plaintiffs’ reliance on D.R. Horton, Inc., 357 NLRB No. 184 (NLRB Jan. 3, 2012), holding that it was inapplicable under Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013).
Employers without arbitration agreements, or employers seeking confirmation that their arbitration agreements will withstand challenge, should refer to Chen for guidance in drafting. While Chen is reflective of the growing consistency of Courts enforcing arbitration agreements even where they compel individual arbitration and require employees to waive the right to proceed collectively under the FLSA, employers should be aware that the matter will be taken up by the Supreme Court in short order in connection with a trio of cases: NLRB v. Murphy Oil USA, Inc., Epic Systems Corp. v. Lewis, and Ernst & Young LLP v. Morris.