To Arbitrate or Not to Arbitrate: That Is The Question

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To Arbitrate or Not to Arbitrate: That Is The Question

3/1/23

How broadly can an employer apply an arbitration agreement? In Espinoza v. Peoplease, LLC, the United States District Court for the Southern District of Florida recently evaluated the right to compel arbitration of claims under the Fair Credit Reporting Act (“FCRA”) and to preclude an employee from pursuing a putative class action. The Court considered three factors under federal and Florida law:

(1) a written agreement containing an arbitration clause;

(2) the existence of an arbitrable issue; and

(3) the right to arbitrate has not been waived.

Applying these factors, the Court denied the co-employers’ motions to stay the case and compel arbitration, concluding that the employee’s FCRA claims were not arbitrable.

The Arbitration Agreement at Issue

In September 2019, the employee was hired for a position at Managed Labor Solutions, LLC through Peoplease, LLC, a Professional Employer Organization. As part of the hiring process, the employee signed a Notice and Agreement of Co-Employment which contained a broad arbitration clause pursuant to which the employee agreed “to utilize binding arbitration as the sole and exclusive means to resolve all disputes that may arise between me, [MLS], and/or PLC including but not limited to disputes regarding termination of employment and compensation,” as well as all disputes based on state or federal law. The arbitration clause also contained a provision precluding the consolidation or joinder of claims and a waiver of class or collective actions. The employee’s employment lasted for only two months.

Almost a year later, in October 2020, the employee again applied for employment with MLS. As part of the application process, the employee authorized MLS to run his consumer report. The report revealed pending criminal charges. As a result, MLS rejected the application and both MLS and Peoplease marked the employee as ineligible in their system. The employee was verbally informed his application was rejected based on his background check.

The FCRA Lawsuit

The employee’s resulting putative class action lawsuit asserted claims under the FCRA for: failure to make proper disclosures; failure to obtain authorization; and failure to provide adverse action notice. Both MLS and Peoplease moved to stay the case and compel arbitration, or, in the alternative, to dismiss the employee’s Complaint based on the arbitration clause signed during his first period of employment.

The Court’s Analysis

The Court concluded that an arbitrable issue did not exist because the employee’s FCRA claims did not fall within the scope of the arbitration clause. The court acknowledged that although (a) the Federal Arbitration Act’s policy favors the application of arbitration agreements, and (b) the arbitration clause contained broad language, compelling the employee’s FCRA claims was nevertheless inappropriate since such claims did not relate to his prior employment. On the contrary, the FCRA claims arose almost one year later when he re-applied for employment.

Take-Aways for Employers

The mere existence of an arbitration agreement does not necessary mean that future disputes with an employee or former employee will be deemed an arbitrable issue. Rather, there must be a nexus between the dispute and the arbitration agreement.

Employers should also take care to:

• Carefully review arbitration agreements with employees and ensure employees re-sign with each new employment period;

• Review Fair Credit Reporting Act Authorization forms and policies for compliance with the Act; and

• Review all policies and procedures for communicating adverse findings on an applicant or employee’s background check before taking adverse action to ensure compliance with the Act.

For further assistance or guidance, please contact Jessica Farrelly, Esq., Jessica Cauley, Esq. or your local FMG attorney.

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