by Jackson Lewis

A mortgage company can compel arbitration of claims for overtime pay by current and former account executives under the terms of an agreement that was not consistent with certain procedural rights and remedies of the Fair Labor Standards Act. The U. S. Court of Appeals for the 8th Circuit overruled a federal district court and found authority in the agreement for the arbitrator to hear the case and render a decision. "When an agreement to arbitrate encompasses statutory claims, the arbitrator has the authority to enforce substantive statutory rights, even if those rights are in conflict with the contractual limitations in the agreement that would otherwise apply," the court said.

Facts of the case. The account executives were responsible for generating loans from the company's 190 branch offices around the country. To meet mandatory performance goals, they claimed they routinely worked more than 40 hours per week. Nonetheless, they were not paid overtime, and they sued the company in federal court for violations of the FLSA. In response, the company argued the claims were subject to mandatory arbitration under the agreement the account executives had signed, and it requested their collective case be removed from court and submitted to an arbitrator.

District Court decision. Refusing to grant the employer's request, the lower court found the claims would be difficult to arbitrate under the agreement. Specifically, the court said the arbitration agreement contained a limitations period for filing claims that was shorter than the FLSA, and the agreement required the claims be litigated in California. Also, the agreement required the plaintiffs to pay half of the costs and to proceed individually rather than collectively.

Eighth Circuit decision. Rejecting the lower court's decision, the Eighth Circuit found the FLSA overtime claims should be submitted to arbitration. In prior decisions, the Eighth Circuit had held that the extent of an arbitrator's procedural and remedial authority, as well as any issues of arbitrability of the claims under an agreement that specifically so provides, should be resolved by the arbitrator at the outset. Here, the arbitration agreement expressly required the arbitrator to apply relevant federal and state law. It also gave the arbitrator authority to resolve disputes over the validity of any part of the agreement and to sever any unenforceable terms from the otherwise valid agreement.

"When an agreement to arbitrate encompasses statutory claims, the arbitrator has the authority to enforce substantive statutory rights, even if those rights are in conflict with the contractual limitations in the agreement that would otherwise apply," the appeals court said. In ruling that certain terms of the agreement were inconsistent with the plaintiffs' FLSA rights and ignoring the arbitrator's authority to resolve such disputes, the lower court expressed "an outmoded judicial hostility to arbitration that the Supreme Court has consistently rejected" and must be reversed, the appeals court concluded. [Bailey v. Ameriquest Mortgage Co., 8th Cir., 10/14/03.]