A federal judge in New York has ruled private arbitration agreements do not bind the US Secretary of Labor when the secretary is not a party to the agreement. The decision allows the US Department of Labor to move forward with a lawsuit alleging that three defendants misclassified their employees as independent contractors to evade the overtime and recordkeeping requirements of the Fair Labor Standards Act.

The department filed suit in the Eastern District of New York in January 2021 against Brooklyn-based CE Security LLC, Concord Limousine 1 LLC and Alexander Gavrilov seeking to recover back wages and liquidated damages for 292 of the defendants’ employees, as well as enjoin the defendants’ violations of the Fair Labor Standards Act. The suit followed an investigation by the department’s Wage and Hour Division.

The defendants provide employees known as spotholders to Consolidated Edison Company of New York Inc. to hold open parking spots for ConEd to perform its work, the department alleges in its case. This entails the spotholders driving to and placing cones at the utility’s worksites.

On Feb. 17, 2021, the defendants moved to compel arbitration of the secretary’s claims under the Federal Arbitration Act and to stay proceedings pending the arbitration. The defendants argued that the act requires the Secretary to arbitrate the overtime and recordkeeping claims because the employees – whom the defendants claim to be independent contractors – had signed agreements to arbitrate employment matters with the defendants.

US District Judge Ann M. Donnelly rejected the defendants’ theory that the DOL merely “acts on behalf” of defendants’ employees in FLSA matters it brings, noting the DOL’s independent interests in prosecuting cases.

“This is a significant and favorable decision regarding the US Department of Labor’s ability to pursue legal actions and relief for employees in the name of the public interest,” said Regional Solicitor of Labor Jeffrey Rogoff in New York. “The Office of the Solicitor of Labor prioritizes its pursuit of cases where employees do not have other avenues of relief when they are forced to arbitrate claims against their employers out of court. This decision affirms the Secretary of Labor’s independent authority to bring claims as the Secretary deems appropriate, even where employees may not because of forced arbitration agreements.”