By: Lía Fiol-Matta, Esq. and Ty Hyderally, Esq.

On June 14, 2020, a New Jersey federal judge ruled that 151 plaintiffs (comprised of over 350 individuals) in a wage and hour case must arbitrate their claims instead of bringing them to court. Arbitration is a conflict resolution mechanism in which the parties use a neutral third party, an arbitrator, to settle a dispute. The claims were brought under the Fair Labor Standards Act, 29 U.S.C. §201 et seq. (“FLSA”), a federal law which establishes minimum wage, overtime pay eligibility, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments.

The plaintiffs in Meghan Magee, et al. v. Francesca’s Holding Corp., No.1:2017cv00565, Document 199 (D.N.J. 2020), are current or former store managers of the Texas-based women’s clothing and accessories store chain, with 680 locations across the country. The plaintiffs claim defendant intentionally misclassified them as exempt, withheld their overtime pay and underfunded store budgets to avoid paying overtime. Named plaintiffs Meghan Magee, Samantha Bailey and Robert Bloominger Jr. filed the suit, on Jan. 27, 2017, as a collective action pursuant to the FLSA and as a class action pursuant to analogous state laws in New Jersey, Illinois and Pennsylvania.  These were the three states where they respectively worked as store managers. According to the lawsuit, Francesca’s managers work 45 to 55 hours per week on a consistent basis but did not receive overtime pay in their paychecks.

Under the FLSA, companies can pay certain employees a salary instead of a traditional hourly rate, as long as they are classified as “exempt” from receiving overtime pay. However, these workers must perform certain duties enumerated in the FLSA and be specifically included as an “exempt” employee, as defined by the statute.  Employers cannot merely give an employee the title of manager – as a means to attempt to avoid paying overtime wages. Managers are expected to perform duties vital to the company’s operations and not tasks typically assigned to subordinates and hourly workers. Generally, “management” includes activities such as interviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.

The plaintiffs in Magee claim that their duties were not materially different from the work performed by subordinates earning an hourly wage.  The plaintiffs thus claim that they were eligible for overtime pay, despite the fact that they received a salary and were classified by defendant as exempt employees. The suit alleges the plaintiffs performed jobs such as running cash registers, stocking shelves, and helping customers, all while working the store alone or with another employee.

The arbitration agreements at issue were signed at different points in time. Some of the agreements were signed by the plaintiffs before the litigation started. Other presumptive plaintiffs were presented with and signed agreements while awaiting litigation. Further, after the litigation had started, Francesca’s gave all new hires an arbitration agreement that stated that all wage and hour claims would be arbitrated. Even though plaintiffs argued that presenting arbitration agreements to existing employees after litigation began constituted improper contact with presumed class members, the court rejected the argument, concluding that even if a wage and hour litigation has commenced, employers may present employees with arbitration agreements, as long as the communications are not abusive or go against the court’s own notice to prospective plaintiffs.  The court also rejected the argument that plaintiffs did not remember signing the agreements as each employee did so by logging into either their personal accounts or, in the case of new hires, using a unique identifier sent to their email, subsequently indicating their consent or non-consent to the agreement to arbitrate all legal claims. The court ruled that the arbitration agreements were enforceable in all three situations. The arbitration agreements also waived any right to proceed on a class-wide basis, which the court sustained. Therefore, each employee must now bear the burden of arbitrating their claim individually.

The court’s ruling, by District Judge Robert B. Kugler, is a blow to employee rights in New Jersey and the Third Circuit, which includes Delaware and three district courts in Pennsylvania. This case shows how far employers may go when employees stand up for their rights and bring claims for unpaid overtime. If you are presented with an arbitration agreement by your employer or prospective employer and/or believe you may be owed wages, you are advised to consult an experienced employment lawyer before signing any document or clicking “I consent”.

This blog is for informational purposes only.  It does not constitute legal advice, and may not reasonably be relied upon as such.  If you face a legal issue, you should consult a qualified attorney for independent legal advice with regard to your particular set of facts.  This blog may constitute attorney advertising.  This blog is not intended to communicate with anyone in a state or other jurisdiction where such a blog may fail to comply with all laws and ethical rules of that state of jurisdiction.