On April 16, 2020, the Fifth Circuit held that an employee is entitled to arbitrate his federal labor law claims as a collective action on behalf of his coworkers against their employer, Sun Coast Resources, Inc. (“Sun Coast”). The Fifth Circuit affirmed both the district court’s and arbitrator’s decisions because the arbitration provision at issue did not expressly exclude class and/or collective actions.

In Sun Coast Res., Inc. v. Conrad, No. 19-20058, a Sun Coast employee brought Fair Labor Standards Act (“FLSA”) claims in arbitration on behalf of a collective of similarly situated individuals, alleging that Sun Coast violated the FLSA by wrongfully excluding work-related travel reimbursements and per diems from employees’ normal wages when calculating their overtime pay. Sun Coast argued that since the employment agreement did not expressly permit arbitration of either class or collective actions, the arbitrator erred in permitting the collective action, and therefore, the award should be vacated. The district court affirmed the arbitrator’s decision and award.

On appeal, the Fifth Circuit affirmed the district court’s decision allowing the collective action to proceed in arbitration, reasoning that the arbitrator correctly determined that Sun Coast could have contractually excluded collective actions in its employment agreement but instead “made a conscious choice not to exclude class arbitration.” The Court noted “[b]y various indications, the arbitration agreement here appears to assign the question of class arbitrability to the arbitrator rather than to the court.” Sun Coast then argued that the arbitrator did not have the authority to decide class arbitrability issues. The Court emphasized that Sun Coast needed to do something “to disabuse the arbitrator” of any notion that he could decide the collective proceeding issue. The Court looked to the agreement first and noted that it provided for arbitration of “any controversy or claim arising out of or relating to [the] employment relationship with Sun Coast [that] [c]overs any dispute concerning the arbitrability of any such controversy or claim.” The agreement also incorporated the American Arbitration Association rules for arbitration. The Court recognized that “those provisions strongly indicate that the parties bargained for the arbitrator to decide class arbitrability.”

In addition, the Fifth Circuit held that “Sun Coast forfeited [that] issue, not once, but twice—first, by not presenting it to the arbitrator at all, and second, by not presenting it in a timely manner to the district court.” Sun Coast maintained that it in fact did previously raise the arbitrability issue by citing two Third Circuit cases discussing the arbitrability of collective actions. The Court wholly rejected Sun Coast’s argument, pointing out that Sun Coast only cited one of the two cases, and the cited case did not address the arbitrability issue.

The Court further recognized that throughout the district court proceedings, Sun Coast only contended that the arbitrator failed to interpret the agreement—not that the arbitrator lacked authority to interpret the agreement as to class arbitrability.  For example, Sun Coast’s briefing alleged that the arbitrator “ignored the rigorous legal standards to be applied in determining whether an arbitration agreement that is silent on the issue of collective action can be rewritten to require collective action arbitration.” In addition, Sun Coast provided the district court with a highlighted copy of the Third Circuit case which discussed whether an arbitration agreement authorizes class actions—not the authority of the arbitrator to decide that issue.  Accordingly, the Fifth Circuit held that Sun Coast failed to preserve the issue for appeal.

Given that many courts provide deference toward interpreting employment arbitration agreements in favor of employees, employers must be precise when drafting their arbitration agreements; i.e., expressly state the specific issues reserved to the arbitrator and include unambiguous class and collective action waivers. In addition, the decision underscores the need to think through all appellate issues at the outset of the arbitration, in order to sufficiently preserve them.