Fifth Circuit Affirms Order Dismissing Tesla Lawsuit in Favor of Arbitration

In Lynch v. Tesla Inc., the Fifth Circuit Court of Appeals affirmed a district court order adopting a magistrate judge’s recommendation that the plaintiffs’ lawsuit should be dismissed in favor of arbitration. The plaintiffs were former Tesla employees who brought an action in district court alleging that Tesla violated the Worker Adjustment and Retraining Notification Act and a similar California statute by failing to provide employees with 60 days’ notice prior to termination and by requiring the employees to sign separation and release agreements. Tesla also had arbitration agreements with its employees. The employees moved for a protective order seeking, in part, an order requiring Tesla to notify all terminated employees that a lawsuit had been filed challenging the terminations. Tesla also moved to compel arbitration. The magistrate judge ordered Tesla to notify terminated employees about the lawsuit and then recommended that the district court grant Tesla’s motion dismissing the lawsuit in favor of arbitration. The district court adopted the magistrate judge’s recommendation and dismissed the action in favor of arbitration. After an unsuccessful motion for reconsideration, the plaintiffs appealed, arguing that the district court should have required Tesla to first notify terminated employees about the lawsuit before dismissing the action and compelling arbitration.

The Fifth Circuit rejected the plaintiffs’ argument that the district court should have considered that the magistrate judge intended to have Tesla issue notice of the lawsuit before dismissing the lawsuit. The court noted that the district court “was under no obligation to accept the magistrate judge’s proposed timeline for reviewing the motions” since the judge’s recommendation of dismissal was not an order but a recommendation related to a dispositive motion. The court also rejected the plaintiffs’ argument that the district court should not have compelled arbitration because there was a pending emergency motion by Tesla to stay the magistrate judge’s order when the case was dismissed in favor of arbitration. The court found that since the entire case was subject to arbitration, there was “no error in adopting the magistrate judge’s recommendation prior to ruling on Tesla’s objection and emergency motion.”

Lynch v. Tesla, Inc., No. 22-51018 (5th Cir. July 5, 2023).