Hot Topic – Arbitration

November 30, 2015

Last updated on November 17, 2023

One of the hot topics on the legal landscape is Arbitration. Arbitration is a specific method of settling disputes that is outside of the court system. It relies on an unbiased third party to resolve disputes away from the courts. That means the decision maker is neither a currently sitting judge nor a jury, but is usually a retired judge or attorney who is sitting as an Arbitrator.

Many times consumers and employees are subject to arbitration agreements that they did not know existed in their employment or consumer agreements. Problems arise when one party to the agreement is substantially more powerful than the other and when groups of individuals with the same claim are disadvantaged by being forced into individual arbitrations rather than be able to move forward together in a class action.

A class action is a powerful legal tool that is available in the United States to assert rights for a group where a single individual claim is too small to cover the costs of litigation. If the same claim applies to a group or a “class” of people the claim can be litigated together as a class action.

The New York Times recently published a lengthy article about the increased use of arbitration in both consumer and employment disputes. “Arbitration Everywhere, Stacking the Deck of Justice” discusses in detail what it calls the ‘far-reaching power play’ by American corporations using consumer and employment contracts to ban people from joining together in class action lawsuits. The vast majority of consumer and employment contracts now have arbitration clauses that take away the rights of people to file any type of court-based lawsuit or class action and forces them to use the arbitration process.

At first blush it may seem like a good idea to relieve the courts of the burden of adjudicating claims. However, employment or consumer cases can pit an individual with limited resources against a corporation with vast resources. The result of a one-sided arbitration agreement is all too often that the individual is deprived of their ‘day in court’ and must walk away without a realistic chance of prevailing and obtaining damages or the compensation due.

Proponents of arbitration argue that it is a cost saving way for people to hold companies accountable without spending large sums of money on attorneys and litigation within the court system. Opponents argue that the data does not support this and it actual prevents claims from being filed. The New York Times found that from 2010-2014 only 505 consumers went to arbitration in disputes of $2,500 or less. In the same time period, of the 1,179 federal-level class actions that companies wanted to push into individual arbitration, four out of five were ruled in the companies favor. The Times article cites predatory lending, wage theft, and discrimination as the type of violations that would normally be brought as class actions.

Challenging the Unfair Arbitration Agreement

There are cases where arbitration is not appropriate, and courts will deny a motion to compel arbitration. The US District Court, Central District of California recently denied a motion to compel arbitration in the case of Ridgeway v. Nabors Completion & Productions Services Company. In Ridgeway, Donahoo & Associates, PC represented the employees and argued that the arbitration agreement at issue should not be enforced and the case should proceed as a class action.

The Ridgeway case was brought as a class action alleging failure to pay prevailing wages on a public works project. The same claim exists for each of the over 150 similarly situated workers who claim they were not paid the proper hourly rate for their work on a public works project. The company, Nabors, moved to compel arbitration claiming that the workers signed an arbitration agreement with a class action waiver. The workers were unaware of any such agreement until after the lawsuit was filed when they learned that their hiring documents included references to an arbitration agreement – they were unaware of the agreement at the time and were told that they had to sign all of the hiring documents or they would not be hired for the job. Nabors filed a motion to compel arbitration to dismiss the class action lawsuit and only deal with workers on an individual basis. Donahoo & Associates, PC argued in court that the arbitration agreement was so one-sided that to enforce it would be a violation of the workers rights to justice. The court agreed, and denied Nabors’ request for individual arbitration and allowed the claims to continue as a single class action for all of the workers.

If you are subject to an arbitration agreement, it may or may not be enforceable—all more the reason to have it reviewed by an experienced employment attorney.

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