Janice Nadeau v. Equity Residential Properties Management Corp., 7:16-cv-07986,  U.S. District Court for the Southern District of New York.

A New York federal judge recently ruled that a property management company cannot force claimants to arbitrate a proposed class action alleging, among other claims, that the company did not compensate its employees for off-the-clock-work, because the company had missed its chance to compel arbitration when it rejected the plaintiff’s attempts at proceeding to pre-suit arbitration.

The judge rejected a motion by Equity Residential Properties Management Corp. (ERPM) to compel arbitration in a proposed class action brought by Janice Nadeau alleging, among other claims, that ERPM violated the Fair Labor Standards Act and New York state laws when it did not compensate Nadeau and other employees for off-the-clock work.   Nadeau claimed that she was regularly required to answer phone calls and texts relating to work both before and after her scheduled shifts, and that ERPM failed to properly record and compensate her for her time.

Upon being hired by ERPM, Nadeau and other employees had signed a mandatory arbitration agreement that required any disputes regarding their employment be resolved by binding arbitration.  The arbitration agreement also mandated that ERPM pay for filing fees, administrative fees, and the arbitrator’s fees and expenses.

In May 2016, after becoming dissatisfied with the lack of compensation for her off-the-clock work, Nadeau filed an arbitration demand with the American Arbitration Association (AAA), as required by the arbitration agreement. However, about a month after the demand, AAA notified Nadeau that it had not yet received the filing fees that ERPM was required to pay.  Nadeau was then fired by ERPM a few days later.  In July 2016, AAA notified Nadeau that because it still had not received the filing fees from ERPM, the arbitration case was to be administratively closed.

Subsequently, after Nadeau filed a complaint with the Southern District of New York, ERPM moved to compel arbitration pursuant to the arbitration agreement its employees had signed.  However, the court denied the motion, finding that ERPM had breached the arbitration agreement, and thus, could not thereafter seek to enforce it.  To allow ERPM to enforce its arbitration agreement against Nadeau, a non-breaching party, would “’set up a perverse incentive scheme,’ contrary to the [Federal Arbitration Act] and common sense.”  The court stated that the incentive would be for “businesses to refuse to arbitrate claims brought by employees in the hope that those frustrated workers would simply drop their claims.”

This summary was prepared by Ryan Corrigan, a second-year law student at the University of Missouri School of Law.