A New Mexico federal court denied a staffing firm’s motion to compel arbitration of a temporary worker’s claims against the firm’s client, holding that the arbitration agreement unlawfully denied his rights under the Fair Labor Standards Act.

After the temporary worker filed a proposed FLSA collective action claim against the client, the client filed a third-party complaint against the staffing firm. Pointing to the employment agreement the worker signed with the staffing firm that mandated arbitration, the staffing firm then asked the court to compel arbitration in the action between the worker and the client.

Although the court agreed that the arbitration agreement encompassed the worker’s claims against the nonsignatory client and that the staffing firm had standing to seek enforcement of the agreement against the worker, the court refused to enforce the arbitration agreement, finding that the language denied the worker guaranteed rights under the FLSA.

Specifically, the court invalidated language that mandated the parties share costs during the arbitration, finding that requiring the worker to front the significant expense of arbitration would make pursuing arbitration “prohibitive and impractical.” The court also found the agreement unlawfully required the worker to file any dispute within one year, notwithstanding the FLSA’s statute of limitations of two years, and the requirement to pay his own attorneys’ fees was “incomplete and potentially misleading” in light of the FLSA’s mandatory award of attorneys’ fees to a prevailing plaintiff. The staffing firm asked the court to sever those portions and compel the remaining arbitration provisions, but the court refused to do so and invalidated the entire arbitration agreement. The arbitration agreement contained no severability clause.

Arbitration agreements can be a powerful tool in an employer’s toolbox, especially against class actions. Staffing firms are encouraged to review their arbitration agreements with outside counsel to ensure existing language does not overreach or become so restrictive of a plaintiff’s rights such that a court might deny its enforcement. Firms should also discuss with their counsel inclusion of a severability clause such that, if one aspect of the agreement is struck down as unlawful, other provisions are not similarly struck down.

To read the case, see Cruz v. AerSale Inc., 2024 WL 22092 (W.D. N.M. Jan. 2, 2024).