Sixth Circuit Refuses To Uphold Collective Action Waiver Absent Arbitration

My working title for this blog was "collective action grab bag," concerning the recent Sixth Circuit case in Killion v. KeHE Distributors, LLC, Case Nos. 12-3357/4340 (6th Cir. July 31, 2014). I went with the title that seemed to be of interest to most practitioners, but the case actually touched on several issues, one of which is a bit of a sleeper.

The Killion case had a fairly straightforward fact pattern. The buyers and sellers of organic food products may not want to admit it, but like any product, they need sales and distribution networks. In Killion, the plaintiffs were part of that network for a distributor of organic and ethnic foods selling to major retailers like Meijer, Giant Eagle, Kroger, and Walmart. They were paid commission under a complex formula that took into account their stocking of shelves, store maintenance, promotional marketing in some stores, maintaining inventory, ordering, and related functions. As this listing suggests, much of their time, in fact about two-thirds of it, was spent largely on inventory rather than on the making of sales. The employer considered them exempt under the outside salesman exemption to the FLSA. [Note to PC police: don't blame us, that's still the name of it in the statute, see 29 U.S.C. section 213(a)(1)].

In 2012, the company laid off approximately 70 of these "sales" employees, but offered them retention agreements. Those agreements provided a $2,000 payment in exchange for their agreement to work another month, to waive any claims they might have, and not to sue on a class-wide basis. Four of the agents sued for unpaid overtime under the FLSA and, while the court ultimately permitted a collective action class to proceed, it excluded those that had signed the agreements. The plaintiffs filed an interlocutory appeal, and then filed a second appeal when the district court granted summary judgment against them.

The Sixth Circuit addressed four sets of issues.

1. Outside Sales Exemption. As to the merits, the court found a question of fact as to the application of the outside salesman and other exemptions. There was no real question that the plaintiffs spent much of their time on handling inventory, the plaintiffs were compensated heavily based on inventory related duties, and there were questions about whether the plaintiffs were really making sales to large grocers. This ruling is of interest to those in retail sales where both selling to the store and maintaining the product displays...