While not tied with a bow, U.S. District Judge Karen Gren Scholer issued a ruling this week that employers who often find themselves as defendants in wage and hour lawsuits will likely view as Christmas coming early.
On Sunday, the Dallas federal judge handed a procedural win for the holding company of Yellow Cab that will drastically limit the number of plaintiffs who can participate in a Federal Labor Standards Act collective action that was filed in 2019 by two former Yellow Cab drivers.
In a 23-page order, Judge Scholer ruled that Yellow Cab’s parent, Irving Holdings, can compel arbitration for a group of plaintiffs who tried to join the collective action but had signed arbitration agreements after the FLSA litigation began.
Lawyers for Irving Holdings said the ruling not only protects employers, it also provides guidance on an unusual fact pattern that, from a caselaw perspective, doesn’t have much precedent.
“There are very few instances in which arbitration agreements are going to be signed after litigation is filed,” said Bell Nunnally partner Mark Shoffner, who represents Irving Holdings. “[This is a] maybe novel issue — not absolute first impression, but one that hasn’t been looked at in the context of post-Epic Systems.”
Epic Systems Corp v. Lewis is a 2018 U.S. Supreme Court decision that determined arbitration provisions can be included in employment contracts with respect to collective action claims.
“I don’t think we’ve seen any case post-Epic Systems where an employer defendant institutes arbitration after a lawsuit was filed,” Shoffner said. “The best practice is to have an arbitration program in place before you’re ever sued, but this is an example — and a judicial approval — of even if you get sued and don’t have an arbitration agreement in place with contractor employees now, it’s not too late.”
Shoffner added that the ruling means “if you act swiftly and efficiently in a way that’s not coercive or arm-bending to your workers, that the court will still enforce arbitration agreements regardless of the timing of a lawsuit.”
Lawyers for the plaintiffs did not immediately respond to a request for comment.
The motions tied to Sunday’s ruling pitted Irving Holdings against plaintiffs Didyme Kalenga and Arnold Bankete plus a group of paratransit drivers who wanted to opt in to the lawsuit.
Yellow Cab’s paratransit drivers transport people with special needs, such as the elderly or those with disabilities, who don’t have access to public transportation. Paratransit drivers drive on nonfixed routes.
Kalenga and Bankete alleged in their August 2019 lawsuit that Irving Holdings misclassified the paratransit drivers as independent contractors, which deprived them of minimum wages and overtime.
On Sept. 3, 2019, Irving Holdings implemented an arbitration program in their independent contractor agreements, which said the driver agrees to arbitration by either beginning his or her services with the company (in the situation of new drivers) or continuing to provide services at least three days after receiving the arbitration notice (for existing drivers presented with the arbitration agreement). Shoffner said 200 drivers signed the arbitration agreement.
In June of this year, Judge Scholer granted a motion to certify the class, which led Irving Holdings to file a motion to compel arbitration a month later. After Judge Scholer’s June 1 ruling, 37 paratransit drivers opted into the collective action.
The plaintiffs argued the arbitration agreements were invalid for a number of reasons, including the argument that they were not enforceable since they were signed after litigation began.
However, Judge Scholer rejected the plaintiffs’ arguments, noting in her ruling that they did not cite any precedent for the arbitration after litigation issue. The judge also didn’t find any precedent in higher courts that hold authority over the Northern District: the U.S. Supreme Court, the U.S. Court of Appeals for the Fifth Circuit or the Supreme Court of Texas (since some of the issues presented before the judge involved state law).
Judge Scholer did find two similar situations posed before the Fourth Circuit and Eleventh Circuit appeals courts. However, in both of those cases, “evidence of overtly misleading and coercive acts by the employer seeking to enforce the arbitration agreements was at the heart of the decision to affirm denial of the underlying motions to compel arbitration.
“Here, however, there is no such evidence,” Judge Scholer noted.
The closest the plaintiffs got to substantiating their arguments that Irving Holdings coerced their drivers into signing the arbitration agreements was an affidavit by driver Tavandra Blocker, who said she was misled because she “was not informed of the pendency of the instant action” before signing the arbitration agreement.
But Judge Scholer said in her ruling that Blocker’s allegations “pale in comparison to the evidence of misleading tactics and coercion” in the Fourth Circuit case, which dealt with such issues.
“Aside from her blanket assertion of ‘misleading’ and ‘coercive’ conduct, Blocker alleges no specific overt acts of wrongdoing by Irving Holdings,” Judge Scholer wrote.
The plaintiffs had also argued that the timing of the arbitration agreements was “suspect” since they began three weeks after the plaintiffs filed their suit.
But again, Judge Scholer stated, because there was lack of evidence of any misleading or coercion by Irving Holdings, “the court finds that the timing of the arbitration agreements alone is not a sufficient basis for restricting Irving Holdings’ speech.”
Shoffner said the defense will confer with the other side next week to determine next steps in the case so Judge Scholer can map out a schedule for the rest of the litigation.
In addition to Shoffner, Bell Nunnally associate Mason Jones is also representing Irving Holdings.
The plaintiffs’ legal team includes Fort Worth attorneys Drew Hermann and Pamela Hermann of Hermann Law as well as Boston attorneys Harold Lichten and Zachary Rubin of Lichten & Liss-Riordan.