N.D. Texas Dismisses FLSA Case in Favor of Arbitration

The Northern District of Texas has dismissed a worker’s Fair Labor Standards Act (“FLSA”) claim because it should have been submitted to arbitration.  In Gay v. Manchester Mgmt., LLC, No. 3:18-CV-1378-D., (ND Texas, October 22, 2018), a woman, Gay, signed an agreement to arbitrate all future claims against her employer, Manchester, when she began working for the company.  The binding arbitration agreement specifically included FLSA wage and hour claims.  In addition, the agreement stated any questions regarding its validity, enforceability, or scope must be resolved by an arbitrator.

Later, Gay filed a complaint against Manchester seeking compensation for her unpaid overtime hours with the Northern District of Texas in Dallas.  In response, the woman’s employer sought to dismiss the case based on the agreement Gay signed at the commencement of her employment with the company.  Gay opposed Manchester’s motion to dismiss by arguing the arbitral agreement was unconscionable and illusory.  In addition, the worker asserted her court case should be stayed in lieu of dismissal.

In a memorandum opinion, the federal court first stated it was required to engage in a two-step process when “considering a motion to dismiss claims because they are allegedly subject to binding arbitration.”  Such a determination requires a court to consider:  “(1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement.”  Where an arbitration agreement contains a delegation clause that transfers “the court’s power to decide arbitrability questions to the arbitrator,” however, the court stated it was obligated to “refer a claim to arbitration to allow the arbitrator to decide gateway arbitrability issues.”

Next, the Northern District of Texas stated the question of whether a valid arbitration agreement existed between Gay and Manchester was one for the court to decide.  The Dallas court then held Manchester successfully established there was a valid agreement to arbitrate between the two parties under Texas contract law.

After that, the court addressed “whether the dispute in question falls within the scope of the arbitration agreement.”  The Northern District of Texas found that Manchester “clearly and unmistakably” demonstrated “the parties agreed to delegate ‘gateway’ issues of arbitrability to the arbitrator.” In addition, the court said:

Because the Agreement contains a valid delegation clause, the court must refer to the arbitrator for binding arbitration the remaining unconscionability issues that Gay raises. The court must also refer the underlying FLSA complaint to the arbitrator because it falls within the explicit scope of the Agreement. See D. Mot. Ex. A at 1 (providing that “claims and/or violations under the . . . Fair Labor Standards Act (“FLSA”) (wage and hour)” are subject to mandatory, binding arbitration). All of these issues are “plainly the right and the responsibility only of the arbitrator” to resolve. Kubala, 830 F.3d 204.

The federal district court next examined whether Gay’s case “should be dismissed with prejudice.” According to the court:

If the court determines that all claims in a lawsuit are arbitrable, it cannot allow the suit to proceed. Heritage Capital Corp. v. Christie’s, Inc., 2017 WL 1550514, at *6 (N.D. Tex. May 1, 2017) (Fitzwater, J.). Although the FAA provides that the court should normally stay the action, the Fifth Circuit has held that dismissal with prejudice is appropriate “in the proper circumstances.” Dean Witter Reynolds, 975 F.2d at 1164. “The weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration.” Id.(emphasis in original). “When, as here, `[t]he only possible role the Court could have would be to review the arbitration award once the proceedings are concluded[,]’ the court should dismiss rather than stay [the underlying complaint].” Heritage Capital Corp., 2017 WL 1550514, at *6 (quoting SGC Health Grp., Inc. v. eClinicalWorks, LLC, 2016 WL 2595109, at *2 (N.D. Tex. May 4, 2016) (Lynn, C.J.)). “The reason for dismissal with prejudice is that retaining jurisdiction of the action by the district court serves no purpose because any remedies after arbitration are limited to judicial review based on the grounds set forth in the FAA.” Atlas Health, LLC v. Geoffrey, 2018 WL 1026271, at *4 (N.D. Tex. Feb. 23, 2018) (Lindsay, J.). Because the court has concluded that all of the issues raised by Gay are arbitrable, the court grants the motion to dismiss with prejudice.

Finally, the Northern District of Texas issued an order dismissing Gay’s FLSA case with prejudice.

Photo by:  Jon Tyson on Unsplash