A key issue in Facebook Inc.‘s push to keep some workers out of a collective lawsuit over unpaid overtime is heading to a federal appeals court.

The U.S. Court of Appeals for the Seventh Circuit will have to decide “whether district courts have discretion to order that notice of a conditionally certified FLSA collective action be sent to employees who, the preponderance of evidence shows, are unable to join because they are parties to binding arbitration agreements with collective action waivers,” Judge Harry Leinenweber detailed April 17.

The issue is one of “pure law with substantial grounds for a...