In a promising opinion for employers, the Fourth Circuit this week upheld an arbitration agreement restricting an independent contractor’s FLSA lawsuit arguing he was an employee.
Shuttle Service, an airport taxi company, entered a “franchise agreement” with a driver. The driver was deemed an independent contractor under the agreement. In addition, the agreement contained a strict arbitration provision, requiring any dispute arising out of the agreement to be arbitrated, with the parties splitting the cost. It also imposed a one year statute of limitations and required the independent contractor to waive his right to participate in any class-action suit.
The driver sued Shuttle Service, alleging he was an employee entitled to overtime under the FLSA. Instead of litigating the merits, Shuttle Service asked the federal trial court to send the matter to arbitration. The court denied its request and struck the arbitration provision as “unconscionable.”
The Fourth Circuit, however, reversed the trial court, ruling that the agreement was enforceable. It determined that requiring the independent contractor to share in the cost of arbitration was no so costly as to be prohibitive. The court also blessed the class-action waiver and shortened statute of limitations.
The decision follows a clear trend upholding employer-employee arbitration agreements, even those that require the employee to chip in for the arbitration, leaving employers with a good option to foreclose litigation before it begins.