The United States Supreme Court has been looking at multiple arbitration cases for several terms now. In the latest term, the High Court has decided to look at yet another case. The arbitration agreement at issue is between Managed Health Network (MHN), a government contractor, who employed licensed health and behavioral counselors to work at U.S. military bases. The counselors allege that they were labeled as “independent contractors,” when they should have been classified as “employees.” As such, the counselors were not paid overtime for the work they performed each week, in violation of the Fair Labor Standards Act (FLSA). Among other things, the FLSA requires that all workers be paid time and one-half for all hours worked in excess of 40 hours each week.
In response to the class action lawsuit, MHN attempted to get the court to dismiss the case and rule that each individual employee must have their own case, instead of a class action. Additionally, MHN wanted the court to rule that the counselors could not even use the court system to resolve their case, but must resolve it under a specific arbitration agreement each counselor was required to sign when they were hired. The court refused to make the counselors arbitrate. Instead, the court held that the arbitration agreement was unenforceable because of its one-sided terms.
In order to sue under the arbitration agreement, each counselor would have had to pay a filing fee of $2,600. That is more than seven times what they would have to pay in court and more than 15 times what they would have to pay to arbitrate in other arbitration venues. Importantly, the arbitration only gave the counselors a six-month statute of limitations, whereas the law clearly gives them two years – and 23 years if they can prove MHN’s actions were intentional.
Not at all happy with the trial court’s actions, MHN appealed the case to the Ninth Circuit Court of Appeals. There, a three-judge panel again ruled that the entire arbitration clause was invalid and unenforceable and that the employees did not have to arbitrate. MHN’s last chance is now with the U.S. Supreme Court. The lawyer for the counselors has stated that:
[W]e are confident that the court will agree with the dozen federal and state court judges who have held this unusually unconscionable arbitration clause to be so one-sided and unfair as to be unenforceable.
MHN believes the Supreme Court will recognize that the California courts have shown “hostility” to arbitration agreements in violation of federal law. They further argue that, at most, the court should invalidate only the offending parts of the arbitration agreement and not the entire agreement. This case has the potential to be a powerful sword for employees or a tremendous shield for employers, and will most likely be analyzed a great deal in the months leading up to the Court’s final opinion.
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