Labor and Employment Law Blog

Arbitration: Be careful what you wish for

Many employers utilize mandatory arbitration agreements, claiming that they "make the process more efficient."  I find that they tend to drive up the cost of litigation because the employer must pay the fees for the arbitrator that can run several thousand dollars a day.  As such, many employers simply choose to settle the case rather then paying the exorbitant arbitrator's bill -- which I guess is making the process more efficient.

The main problem with arbitration agreements comes up with class actions.  Because class actions are going to be expensive no matter what, many employers feel that they can receive more favorable treatment in arbitration.  In general, the defendant will try to push a class action into arbitration, and the plaintiff will try to keep it in court.  However, as the case of Long John Silver Restaurants v. Erin Cole shows, arbitration is not always in the employer's interest.

In a recently published decision out of the 4th Circuit, the court refused to overturn an arbitrator's decision even though the decision would likely never have stood up in court.  Normally, FLSA claims must be brought under something called a collective action.  A collective action is similar to a class action except that employees must "opt-in" in order to be part of the class.  That is, in a normal class action, a letter is mailed to all class members, and unless they affirmatively opt-out -- that is, mail back the form saying they do not wish to be part of the class, then they are part of the class and the company will have to pay for their damages, if they are proven.  In a collective action, a letter is sent to all potential class members, and each of the must mail in a letter stating that they wish to take part in the litigation.  If they do not mail the letter, then they are not part, and the company does not have to pay them anything.

Conventional wisdom in employment practice says that only 25% of employees will mail in the opt-in form. Thus, collective actions definitely favor the employer because it means they will only have to pay 25% of what they should pay.  In the court systems, FLSA claims can only be brought as collective actions.  Thus, if you have an overtime violation that spans several states, you might pursue it as a collective action, rather than try to coordinate several class actions across multiple states.

Fortunately, the arbitrator in the Long John Silver case decided to eliminate the overhead of the collective action. He determined that because the employees had all signed an arbitration agreement that allowed for class actions, this served as a waiver of the obligation to bring a collective action.  Thus, the plaintiffs had the remedies of the FLSA with the procedures of a class action -- the best of both worlds.  Note that this reduced the cost of the litigation processes, but it greatly increased the amount of damages the employer had to pay.

Interestingly, rather than praising this arbitrator for streamlining the process and reducing the cost of litigation, the employer tried to have the arbitrator's decision overturned by a Court.  It seems that employers love arbitration, until they get ruled against, then they will force the battle into court.  In any case, the Court decided that the arbitrator was within his rights to eliminate the requirement for the opt-in, and the employer would have to live with the arbitrator's decision.

This was an interesting case for a number of reasons.  Most important though is that employees should not be afraid to raise a claim just because they have an arbitration agreement in place.  In many cases, this can work to the employee's advantage.  Also, many employers are willing to waive arbitration.  In fact, I just had a trial on a case in which a valid arbitration agreement was in place, but both sides decided to waive the agreement and go to court. In other cases, I have had to compel arbitration because the employer did not want to arbitrate, even though they were the ones that insisted that an arbitration agreement be signed when the employee first began work.

Also, a thanks to reader, Joe, who brought this case to my attention.

$1.1 Million in Attorneys Fee for $30,300 in damages

Many readers of my blogs and the gotovertime website know that a major tool that employees have in getting employers to comply with the law is that the employee can frequently recover attorneys fees if they prevail.  Frequently, defense attorneys discount this by stating that judges "never" award attorneys fees in excess of the amounts that are recovered.  However, a recent case illustrates that this is simply not the case.  In Harman v. City and County of San Francisco, 158 Cal. App. 4th 407, the Plaintiff was awarded $30,300 in damages for racial discrimination.  The appellate court then upheld an award of $1,113,905 in attorneys fees. In particular the Court held that "[t]he law does not mandate, however, that attorney fees bear a percentage relationship to the ultimate recovery of damages in a civil rights case." 

This is an extremely useful case because frequently, defendants can make mountains out of mole hills.  If plaintiffs were limited to recovering only a percentage of the amount recovered, it would eliminate effective representation for any claims less than a couple hundred thousand dollars.  Many employment cases simply will not amount to over $100,000, so plaintiffs' attorneys are reluctant to take them.  Hopefully, this case will set a good precedent that plainitffs are entitled to their full attorney fees, even if the actual value of the case is small. 

I will point out that to many individual plaintiffs, such as many of the ones I represent, $30,000 is no small amount.  Without the proper award of attorneys fees, many of these people would not be able to receive adequate legal representation.

It is also interesting to note that the attorneys fees in the Harman case were paid largely to a conservative legal foundation, The Pacific Legal Foundation.  The Pacific Legal Foundation lists its goals as representing individuals who have "grown weary of overregulation by big government, overindulgence by the courts, and excessive interference in the American way of life." (See http://www.pacificlegal.org/?mvcTask=about).  Hopefully, they will put the $744,756.75 that they were awarded to use in insuring that the courts are open to all employees who rights have been violated.