Employer Pays $25K in Arbitration Admin. Fees for $7K FLSA Claim.

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Sometimes, the fees associated with arbitration will cost more than the actual claim made by the employee.

Just because you’ve got the right to arbitrate a claim doesn’t mean that you have to arbitrate that claim.  If you’ve read my blog before, you know that arbitration is a great form of alternative dispute resolution for many claims.  But, employers should think carefully before arbitrating employment disputes:  Arbitration Isn’t Always Good for Employers.  In conducting that analysis, one factor for employers to consider is the amount of fees that they will pay to an arbitrator in comparison to the value of the employee’s claim.

In Hernandez v. Acosta Tractors, Inc., No. 17-13057, 2018 WL 3761126 (11th Cir. Aug. 8, 2018), the Eleventh Circuit Court of Appeals confronted an employer who was having second-thoughts about the wisdom of arbitrating a claim under the Fair Labor Standards Act.  (“FLSA”).  Julio Hernandez claimed that his employer, Acosta Tractors, failed to pay him overtime.  Mr. Hernandez sued in federal court and Acosta Tractors moved to dismiss the case because he signed an arbitration agreement.  The judge agreed, and dismissed Mr. Hernandez’s case in favor of arbitration.

Acosta Tractors soon began to experience sticker-shock with the arbitration process.  Mr. Hernandez was one of three employees who were arbitrating FLSA claims.  Acosta Tractors asked the arbitrator to consolidate the three proceedings into one, but the arbitrator refused.  The arbitrator also ordered 29 depositions to be taken in the three separate proceedings.

At this point, I need to be clear:  an arbitrator is essentially a paid judge.  Every time the arbitrator works on a case, he bills the parties for his work — usually at rates of $350.00 per hour or more.  Additionally, if a third-party organization, like the American Arbitration Association is involved, they will charge for their work on the case.  As a result, administrative fees quickly add up.

In Acosta Tractors’ case, it received bills for administrative fees in the amount of $33,100 and $43,640 in the other two cases, and $25,875 in Mr. Hernandez’s case.  At this point, faced with over $100,000 in administrative fees, Acosta Tractors cried “uncle,” and tried to go back to federal court.  It refused to pay the arbitration fees, and asked the federal judge to re-assert control over the case.  But, the judge was not pleased.  He found that Acosta Tractor defaulted in arbitration, and thus was also in default in federal court.  Ultimately, the judge entered a default judgment in Mr. Hernandez’s favor in the amount of $7,293.00.

On appeal, the Eleventh Circuit vacated the judge’s ruling for further consideration.    The Eleventh Circuit found that the trial judge should not have entered a default judgment based solely upon the failure to pay administrative fees in arbitration.  Instead, the Eleventh Circuit directed the trial judge to determine whether Acosta Tractors “acted in bad faith in choosing not to pay its arbitration fees.”  The court suggested that a “good faith inability to afford the arbitration fees” would be a factor in Acosta Tractors’ favor, but also noted that its decision “to abandon arbitration after getting adverse rulings from the arbitrator certainly looks like forum shopping.”

To me, the biggest lesson for employers to learn from Hernandez is:  “look before you leap.”  Arbitration is going to be expensive for everybody involved.  In Mr. Hernandez’s case, Acosta Tractors was billed $25,875 in administrative fees on an overtime claim that was worth $7,293.  With the benefit of hindsight, it looks like Acosta Tractors could have saved money by keeping this FLSA case in federal court.

Arbitration Agreements: The Gifts That Keep On Giving

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Arbitration agreements can be binding even if they were signed during a different period of employment.

Diamonds are forever — and so are employment arbitration agreements.  That’s the lesson to be learned from Gillian v. Cowabunga, Inc., No. 2-17-cv-01389-JEO, 2018 WL 2431345 (May 30, 2018).  (For fans of Teenage Mutant Ninja Turtles, I unsuccessfully tried to find a way to work “Cowabunga, Dude!” into the title of this blog post.)

Scarlett Gillian was first employed by Cowabunga from November 2015 to March 2016.  When she was first hired, Ms. Gillian signed an agreement to arbitrate any disputes relating to her employment.  Ms. Gillian quit her job on March 14, 2016, but was re-hired on May 4, 2016.  She did not sign an arbitration agreement when she was re-hired.  Ms. Gillian claimed that she was sexually harassed during her second period of employment and filed suit in federal court.  Cowabunga moved to dismiss that lawsuit and claimed that Ms. Gillian was required to arbitrate any claims because of her prior arbitration agreement.  Ms. Gillian argued that she should not be required to arbitrate because she did not sign a new arbitration agreement when she was re-hired.

United States Magistrate Judge John Ott agreed with Cowabunga.  There appears to be no authority from the Eleventh Circuit Court of Appeals on this issue.  Nevertheless, Judge Ott relied upon decisions from several United States District Court Judges.  His opinion hinged upon the following conclusion:  “Where an arbitration agreement contains express language indicating intent for the agreement to survive termination of employment, parties may be compelled to arbitrate claims arising during subsequent re-employment.”  Gillian, 2017 WL 2431345 at *2.  Ms. Gillian’s arbitration agreement contained an express provision stating that it survived termination of her employment.  Therefore, Judge Ott found that she could be compelled to arbitrate, even though she did not sign a new arbitration agreement when she was re-hired.

Gillian provides employers with another way to avoid lawsuits in federal court.  Of course, if you are a regular reader of my blog, you know that arbitration agreements aren’t always a perfect solution for employers:  Arbitration Isn’t Always Good for Employers.  Nevertheless, if you require your employees to sign an arbitration agreement, you should make sure that the agreement also contains a provision stating that the agreement survives termination of employment.

Arbitration Isn’t Always Good for Employers

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In employment cases, arbitrators frequently enter decisions that are not employer-friendly.

Business owners frequently think that arbitration agreements are good for business.  That belief is fostered by pro-business organizations like the U.S. Chamber of Commerce, which actually advocates for arbitration of employment disputes here:  Protect Employment Arbitration Agreements

Certainly, in some circumstances, arbitration agreements are good things.  They can offset difficult venues, or employee-friendly judges.  But, in life, there is a cost that comes with almost every benefit.  In my experience, employment law arbitrators tend to “split the baby” and enter decisions under which nobody obtains a complete “victory.”  For example, the arbitrator might reverse a termination decision and impose a ten-day suspension instead.   In some cases, the arbitrator doesn’t even compromise, and instead flat-out reverses an employer’s reasonable termination decision.

That’s what happened recently in Peco Foods, Inc. v. Retail Wholesale and Dep’t Store Union Mid-South Council, No. 17-13269, 2018 WL 1324860 (11th Cir. Mar. 15, 2018). In Peco Foods, a supervisor reminded employees during a safety meeting that throwing ice was prohibited during work hours.  In response, Larry Richardson said:  “I don’t throw ice, I throw lead.”  Richardson’s employer interpreted that statement as a threat of gun violence and terminated his employment.  Richardson’s union filed a grievance challenging the termination, and an arbitrator reversed the decision — finding that the statement was not a threat.

Richardson’s employer appealed the arbitration decision to federal court.  But, courts are extremely reluctant to overturn arbitration decision.  Nevertheless, the employer argued that threats of workplace violence are so serious that the courts should reinstate the termination as a matter of public policy.  The Eleventh Circuit Court of Appeals rejected that argument, primarily because there were factual disputes over whether Richardson’s statement was actually a threat.

Employers with unionized facilities frequently can’t avoid arbitration agreements.  But, other employers should think carefully and consult with counsel before embracing arbitration of employment-related disputes.

 

Potential Danger from Opt-Out Clauses in Arbitration Agreements

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Employers should give careful consideration and attention to whether they want to include an opt-out provision in their arbitration agreements.

As I discussed last week, arbitration agreements are popular with Alabama employers and the Alabama Supreme Court:  The Supreme Court Really Likes Arbitration.  While Alabama has become a favorable venue for arbitration, other jurisdictions, like California, remain hostile.  In particular, some judges find that employment arbitration agreements are unconscionable.  In other words, the employer possesses so much bargaining power in the employment relationship that the employee should not be bound by a “take it or leave it” arbitration policy.  In an effort to avoid such determinations, some employers have inserted opt-out provisions into their arbitration agreements.

In 2016, Brian Berkley wrote a great article discussing the benefit of opt-out provisions:  Can Opt-Out Provisions Save Arbitration Clauses? An opt-out provision gives the employee the opportunity to escape arbitration.  Typically, the provision is buried deep within an arbitration agreement and gives the employee the opportunity to avoid arbitration by providing written notice to the employer within 30 days of signing the agreement or receiving arbitration training.  By inserting an opt-out provision, employers are hoping to convince judges that arbitration is not unconscionable, because the employee had an opportunity to avoid it. The employer is gambling that the employee never discovers the opt-out language buried in the arbitration agreement.

Recently, however, CVS Drug Stores learned that an opt-out provision can create as many problems as it cures. See Hall v. CVS Health Corp., No. 2:17-cv-00289-KOB, 2018 WL 1182603 (N.D. Ala. Mar. 7, 2018).  In that case, Roy Hall sued CVS for, among other things, age and race discrimination.  But, Mr. Hall previously participated in a CVS-sponsored course called Arbitration of Workplace Legal Disputes, and he read and understood materials which informed him that he would be required to arbitrate all employment disputes unless he opted out.  Judge Karen Bowdre, however, found a factual dispute on whether Mr. Hall actually opted out of the arbitration agreement.

Mr. Hall testified that that he mailed a written letter to CVS within 30 days of training, and he opted-out of the arbitration agreement.  Yet, he did not send the letter by certified mail, and he could provide no proof, other than his testimony, that he actually sent the letter.  In contrast, CVS could not “prove a negative.”  It provided Judge Bowdre with affidavits from employees saying that they never received Mr. Hall’s alleged letter.  But, other unidentified employees could have possessed the letter and lost it.

Judge Bowdre decided to resolve the factual dispute by ordering a jury trial.  Under her ruling, a jury will decide whether Mr. Hall actually mailed the opt-out letter, and whether CVS actually received it.

Employers typically want arbitration because it helps to streamline the dispute process and it avoids many of the pitfalls associated with jury trials.  But, the opt-out clause in CVS’s arbitration agreement has caused the exact opposite outcome.  CVS will now have to face the uncertainties of a jury trial, and that trial will further delay the process.

Employers should think carefully before putting an opt-out provision in their arbitration agreement.  For nationwide employers like CVS, an opt-out provision might make sense, because it helps with enforcement in fickle jurisdictions like California.  But, in Alabama, where the courts have been zealously enforcing arbitration agreements, an opt-out provision might actually be counter-productive.

Newsflash! The Alabama Supreme Court Really Likes Arbitration

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The Alabama Supreme Court recently compelled arbitration of an employment-related dispute, even though the employer was not a named party to the arbitration agreement.

When I was a young lawyer, the Alabama Supreme Court really disfavored arbitration.  They would find almost any excuse to give somebody their “day in court,” instead of enforcing contractual dispute resolution.  Times have certainly changed.   Binding decisions from the United States Supreme Court, and election of pro-business candidates to the Alabama Supreme Court have lead to a sea-change.  Now, the Alabama Supreme Court almost always enforces arbitration agreements.

This point recently hit home in Bridgestone Americas Tire Operations, LLC v. Adams, No. 1160877, 2018 WL 1355966 (Ala. Mar. 16, 2018).  Ottis Adams was hired by BFS Retail and Commercial Operations (“BFS”) in 2006.  When he was hired, Adams signed BFS’s Employee Dispute Resolution Plan which required arbitration of almost all employment disputes.  At some point, Adams changed employers from BFS to a sister company — Bridgestone Americas Tire Operations, LLC (“Bridgestone”).  Adams left Bridgestone in 2016 and began work for a competitor — McGriff Tire Company.  Bridgestone then sent a letter to McGriff stating that Adams’s employment violated a noncompetition and nonsolicitation agreement signed by Adams.  Bridgestone also suggested that Adams violated a duty of loyalty by selling tires for McGriff while still employed by Bridgestone.

McGriff terminated Adams’s employment, and Adams sued Bridgestone for interference with his business relationship with McGriff and for defamation.  Bridgestone moved to dismiss the lawsuit and compel arbitration.  Adams convinced the trial court that Bridgestone was not a named party to the the BFS agreement, and that court denied the motion.  So, Bridgestone appealed.

The Supreme Court compelled arbitration for two reasons.  First, the BFS agreement required arbitration of “all disputes covered by that plan, not just disputes with BFS.”  Second, the agreement applied to all “sister companies,” “related companies,” and “affiliate companies” of BFS.  Even if Bridgestone was not a named party to the agreement, it fell within the definition of a “sister company,” “related company” or “affiliate company.”

Adams provides guidance to employers who want to avoid trial courts and jury trials.  By broadly wording an  agreement to cover all disputes related to employment, and by making the agreement applicable to any sister companies or affiliates, employers can avoid litigation and compel arbitration.

 

 

Arbitration Clause Validity: Employees Must Demand Jury Trial On a Specific Issue

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Employees challenging the validity of an arbitration agreement must ask for a jury trial on the specific issue in dispute.

An employee who contests the validity of an arbitration agreement, and wants a jury to determine validity, must demand a jury trial on the specific issue in question.  See Burch v. P.J. Cheese, Inc., No. 13-15042, 2017 WL 2885095 (11th Cir. Jul. 7, 2017).  This is an interesting procedural issue which could trap many unwary lawyers.  Typically, a lawyer filing a complaint for an employee (called the “plaintiff” in court) will make a generalized request at the end of the complaint:  “Plaintiff Demands a Trial By Struck Jury.”  In Burch, the Eleventh Circuit Court of Appeals found that a generalized request for a jury trial is insufficient to actually obtain a jury trial on issues affecting the validity of an arbitration clause.

In Burch, the employee attempted to sue his former employer for discrimination in federal court in Alabama.  After being sued, the employer provided the court with a  copy of an employment contract containing an arbitration clause, and asked the court to compel arbitration.  The employee resisted arbitration by claiming that the signature on the employment contract was not his.  As a result, there was a factual issue on whether a valid, binding arbitration agreement existed.  If the employee signed the agreement, he could be compelled to arbitrate his claims.  If he did not sign the agreement, he was entitled to continue litigating in federal court.

The employee claimed that he was entitled to have a jury determine whether he actually signed the agreement.  Nevertheless, the Eleventh Circuit found that he waived any right to a jury trial on the validity of his signature.  The Court found that the generalized request for a jury trial in his complaint was not sufficient. Instead, the Federal Rules of Civil Procedure and the Federal Arbitration Act required the employee’s lawyer to demand a jury trial on the specific issue of the signature’s validity at the same time that he generally opposed the motion to compel arbitration.  Because the employee’s lawyer failed to file a jury demand on that specific issue, the employee waived his right to a jury trial.

This issue made its way to the Eleventh Circuit, because the judge in Alabama conducted a bench trial and determined that the employee’s signature was valid.  After the judge compelled arbitration, the employee appealed.   In most cases, juries are perceived to be more sympathetic to employees than judges.  As a result, employees want juries to determine as many issues as possible.   The Burch case provides an additional procedural defense to employers seeking to avoid juries, and also represents a procedural roadblock that could catch some lawyers by surprise.

11th Cir: No Snatching Victories from Jaws of Arbitration Defeats

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The Eleventh Circuit Discourages Parties From Trying to Snatch Court Victories From Arbitration Defeats

The Eleventh Circuit Court of Appeals issued an entertaining opinion reinforcing its presumption that courts should not overturn arbitration decisions in labor disputes.  Wiregrass Metal Trade Council AFL-CIO v. Shaw Environmental & Infrastructure, Inc., No. 15-11662, 2016 WL 4702017 (11th Cir. Sept. 8, 2016).  In Wiregrass, an arbitrator ordered reinstatement of an employee who was terminated from employment, but a federal district court reversed that decision.  Chief Judge Ed Carnes provided this introduction to the case:

A dispute involving the interpretation of a collective bargaining agreement was submitted to an arbitrator, as both parties had agreed their disputes would be. As usually happens, the losing party was not happy with the loss. See Saturn Telecommunications Servs., Inc. v. Covad Communications Co., 560 F.Supp.2d 1278, 1279 (S.D. Fla. 2008) (Jordan, J.) (“Everyone supposedly loves arbitration. At least until arbitration goes badly.”). As too often happens, instead of accepting it and moving on, the loser moved the district court to set aside the arbitration award, which it did. Then the former winner, who had become a loser, appealed that decision to this Court. We reverse the district court’s decision and restore the polarity of the parties to the status they were in when they left arbitration. We do so because of the law’s insistence that arbitration losers who resort to the courts continue to lose in all but the most unusual circumstances, of which this is not one.

Wiregrass, 2016 WL 4702017 at *1.

The employee in Wiregrass was a government contractor at a federal facility, and he was terminated for possessing government property without authorization.  The arbitrator ordered him reinstated to employment, because he did not know that the property in question was government-owned.  The federal district court reversed the arbitrator, because the arbitration agreement did not contain language requiring knowledge that the property was government-owned.

As a result, the appeal focused primarily upon whether the arbitrator interpreted the arbitration agreeement to include a knowledge requirement, or if she modified the agreement to impose a knowledge requirement when none was intended.  Interpretations by arbitrators are permissible, but modifications of the agreement are not.  Judge Carnes recognized that the arbitrator’s decision could be plausibly viewed as either a modification or an interpretation:

Given what we have and what we don’t have from the arbitrator, one could fairly characterize her decision as an interpretation of the agreement or as a modification of it. One characterization is as fair as the other. So we are, like Buridan’s ass, stuck between two equally plausible choices. Did the arbitrator interpret the possession policy and discover an implied knowledge requirement, or did she impermissibly modify the policy by simply adding that requirement?

Wiregrass, 2016 WL 4702017 at * 6.  Despite that dilemma, Judge Carnes found guidance in the Supreme Court’s decision in United Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960).

The rule of Enterprise Wheel is that, when it is “not apparent” from the arbitrator’s stated reasoning (or lack thereof) whether she permissibly interpreted a collective bargaining agreement or impermissibly modified it, and one can plausibly read the award either way, the court must resolve the ambiguity by finding that the award is an interpretation of the contract and enforcing it. The rule reflects a strong, albeit not irrebuttable, presumption that the arbitrator has interpreted the agreement instead of modifying it.

Wiregrass, 2016 WL 4702017 at *6.  Judge Carnes concluded by reinforcing the presumption that arbitration awards should be upheld:

The Enterprise Wheel presumption, which we apply today, helps keep the promise of arbitration. By presuming, in the absence of evidence to the contrary, that an arbitrator’s award rested on an interpretation and not a modification of an agreement, we discourage parties from trying to snatch court victories from the jaws of arbitration defeats.

Id. at *7.

Wiregrass is an entertaining and informative review of the Eleventh Circuit’s presumption in favor of arbitration decisions.  In this case, that presumption favored the employee, because the arbitrator awarded reinstatement.  Nevertheless, in future decisions, the presumption could easily work in favor of the employer.

 

 

 

 

Employees Have 6 Months To Enforce Arbitration Awards

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Arbitration of Employment Law Disputes

Employees have only six (6) months to ask a Judge to enforce an arbitration award that is entered under a collective bargaining agreement.  See Harris v. Oak Grove Resources, LLC, No. 2:16-cv-00015-JEO, 2016 WL 3997254 (N.D. Ala. Jul. 26, 2015).  Anthony Harris relied upon a collective bargaining agreement to contest his termination from employment.  On June 21, 2013, an arbitrator ordered Mr. Harris reinstated to employment with back pay.  The arbitrator ordered the parties to negotiate the amount of back pay owed to Mr. Harris, and agreed to keep his file open until February 15, 2014 to resolve any disputes.

Mr. Harris claimed that Oak Grove refused to negotiate, and instead unilaterally issued him a check on February 28, 2014 in an amount below what Mr. Harris claimed was owed.  Mr. Harris then waited until December 3, 2015 to file a claim in the Circuit Court of Jefferson County, Alabama seeking “enforcement” of the arbitration award.

Oak Grove removed the case to federal court and argued that Mr. Harris’s state law claims should be dismissed because they were preempted by Section 301(a) of the Labor Management Relations Act.  Magistrate Judge John Ott agreed, finding:  “an employee’s claim for enforcement of an arbitration award rendered under a collective bargaining agreement [is] preempted by section 301(a) of the LMRA.”  After reaching that conclusion, Judge Ott further relied upon other authorities to hold that an employee possesses only six months from the time a section 301 claim accrues to assert a claim.

In this case, Mr. Harris’s claim would have accrued at least by February 28, 2014 — when Oak Grove sent the check.  But, Mr. Harris waited a year and ten months from that date to seek enforcement of the award.  As a result, Judge Ott found that Mr. Harris’s claim was barred by the six-month statute of limitations.

Harris and the authorities relied upon by Judge Ott provide employers and employees with a definite, fixed timeline to resolve any disputes related to an arbitration.  Employees who fail to assert their rights within that six-month timeline do so at their own peril.

 

USERRA Claims Are Subject to Arbitration

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Military service discriminatoin: USERRA Claims Can Be Subject to Arbitration

Employees asserting claims of military service discrimination can be forced to arbitrate those claims if they sign a valid arbitration agreement.  See Bodine v. Cook’s Pest Control, Inc., No. 15-13233, 2016 WL 4056031 (11th Cir. Jul. 29, 2016).  In Bodine,  Mr. Bodine claimed that his supervisor made disparaging remarks, took work away from him, and ultimately terminated him because of his service in the United States Army Reserves.  As a result, he sued Cook’s Pest Control under the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”).

However, Mr. Bodine also signed an employment contract requiring arbitration of all employment disputes.  He claimed that the arbitration clause was void, because it contained terms that violated USERRA:  (1) a provision allowing the arbitrator to impose attorneys’ fees and costs on Mr. Bodine; and, (2) a six-month statute of limitations.  USERRA explicitly provides that there is not statute of limitations for USERRA claims and and that court costs and fees cannot be assessed against a USERRA plaintiff like Mr. Bodine.

The Eleventh Circuit recognized that USERRA also has a “non-waiver” provision which prevents employees like Mr. Bodine from waiving their USERRA rights.  Based upon that provision, Mr. Bodine argued that the entire arbitration provision was void, because it would force him to waive some of his USERRA rights.

The Eleventh Circuit disagreed.  It found that the “non-waiver” provision would void only the two offending provisions of the arbitration clause — not the entire clause.  Thus, the Eleventh Circuit affirmed an order sending Mr. Bodine’s USERRA claims to arbitration.

Electronic Signature Can Result In Arbitration

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United States District Court Judge Lynwood Smith recently found that an electronic signature on an arbitration agreement was sufficient to compel arbitration of a sexual harassment claim.  Humphrey v. Cheddar’s Casual Cafe, Inc., No. 5:16-CV-00704-CLS, 2016 WL 3483168 (N.D. Ala. Jun. 27, 2016).

There is a strong federal policy favoring arbitration.  Nevertheless, the party requesting arbitration must prove that a binding arbitration agreement exists.  In Humphrey, the plaintiff did not explicitly deny that she completed the on-line arbitration agreement.  Instead, she argued that her employer failed to meet its burden prove that she was the person who actually e-signed the agreement.

Nevertheless, Judge Smith disagreed.  He found that the information surrounding the e-signature was sufficient to establish that the plaintiff e-signed the agreement.  Among other things, she provided the following information contemporaneously with signing the agreement:  (1) her social security number; (2) her first name, middle initial, and last name; (3) her street address; (4) her telephone number; (5) her email address; (6) her date of birth; and (7) her gender.

In summary, Humphrey demonstrates that in this age of on-line commerce, e-signatures are the functional equivalent of the “real thing.”