Sixth Circuit Dismisses Misclassification Class Action

March 27, 2014 By Labor and Employment
Legal Update

Today the Sixth Circuit Court of Appeals issued a published decision in favor of arbitration that has potentially broad impact on employment and arbitration agreements. For the first time, the court held that the strong federal policy in favor of arbitration requires an arbitration agreement to be enforced after the agreement expires, even if the arbitration clause is not listed in the agreement’s survival clause. Huffman, et al. v. The Hilltop Companies, Case No. 13-3938 (6th Cir. Mar. 27, 2014).

A group of contractors were engaged by Hilltop to review home mortgages. The contractors signed agreements that contained an arbitration clause and a survival clause, but the survival clause did not list the arbitration clause. The agreements expired when the engagement ended. The contractors sued Hilltop in a class and collective action for unpaid wages and overtime allegedly owed to all contractors on the engagement. The contractors alleged that they were employees whom Hilltop misclassified as independent contractors under the Fair Labor Standards Act and Ohio law. Hilltop moved to dismiss the class and collective action and compel individual arbitration pursuant to the contractors’ agreements.

In an issue of first impression for a federal appellate court, the Sixth Court considered whether the omission of the arbitration clause from the survival clause demonstrates that the parties intended the arbitration requirement to expire with the agreements. The court conceded that the omission could demonstrate that the parties intended to avoid arbitration after the agreements’ expiration. However, the fact that other clauses in the agreement were also not included in the survival clause made that intent less than clear.

Relying upon U.S. Supreme Court precedent, the court stated that the strong presumption in federal law that arbitration agreements should be enforced post-expiration could only be overcome expressly or by a clear implication of the parties’ intent. The Sixth Circuit held that “the omission of the arbitration clause from the survival clause in this case did not clearly imply that the parties did not intend for the arbitration clause to have post-expiration effect.” Id. at p. 8-9. Therefore, the arbitration clause was enforceable.

The Sixth Circuit also addressed another arbitrability question that has been more frequently litigated: whether an agreement that is silent regarding classwide arbitration allows a court or an arbitrator to conclude that the agreement permits classwide arbitration. Following its recent decision in Reed Elsevier, Inc. v. Crockett 734 F.3d 594 (6th Cir. 2013), the court in Huffman held that the agreements’ silence regarding classwide arbitration favored the company. Because the parties never agreed to permit an arbitrator to decide whether classwide arbitration was available, the court had to make the determination. And because the agreements did not explicitly authorize classwide arbitration, the court determined the contractors had to arbitrate individually against Hilltop. The court therefore dismissed the class and collective action and compelled the contractors to pursue individual arbitration.

While this decision is very favorable for employers and pro-arbitration companies, it also serves as a warning about careful contract drafting. The Sixth Circuit cautioned that if the arbitration provision was one of the only provisions not included in the survival clause, a different outcome may have resulted. As will often be the case in arbitration agreements, parties who intend to require arbitration after an agreement expires should make clear that the arbitration obligation does not expire with the agreement, such as by including the arbitration provision in a survival clause. Similarly, parties desiring to avoid classwide arbitration should also make clear not to permit or even suggest the availability of class proceedings.

Two class action attorneys in Frost Brown Todd’s Litigation Department, Matt Blickensderfer and Eugene Droder III, represented the defendant Hilltop in the case.

For more information, contact Matt or Eugene, or any member of Frost Brown Todd’s Labor and Employment team.