Articles Posted in Arbitration

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The Washington Post recently ran a story about a class action sex discrimination case against Sterling Jewelers, the company behind Jared the Galleria of Jewelry and Kay Jewelers. The women who filed the case initiated it in 2008 but the public knew nothing about the case until recently because Sterling made its employees agree to bring claims against the company in arbitration. Arbitration, unlike court proceedings, can enable a company to keep damaging information about the company away from the public eye.

What we learned from the Washington Post story is that the plaintiffs in the case produced about 250 sworn statements from women who claim that Sterling fostered a corporate culture of abuse toward women. The women who made these statements spoke of a culture where male managers treated their female subordinates as sexual objects. These men demanded that the women they managed acquiesce to their sexual harassment in order to get ahead at Sterling. The plaintiffs also allege that Sterling paid female employees less than similarly situated male employees.

If the plaintiffs who filed this case had been allowed to file it in court, this evidence of widespread sex discrimination would have come to light far sooner. A class action such as this likely would have grabbed headlines back in 2008 when it was filed. Because Sterling was allowed to force the case into secretive arbitration proceedings, the public did not know about it. Women who applied for jobs at Sterling did not know about these allegations of widespread sex discrimination at the company. If the allegations are true, some of the women who obtained jobs at Sterling without knowledge of the allegedly toxic culture likely became victims of that culture.

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Former Fox News journalist Gretchen Carlson recently filed a sexual harassment lawsuit against Fox News news chief Roger Ailes that has received a lot of media attention.  One aspect of the case that has received attention is Ailes’ efforts to force the lawsuit out of the public eye and into secretive arbitration proceedings.  Ailes’ attorneys have griped about trying his case in the press even though Ailes has aired allegations against countless other people in the press over the years.

Carlson filed her lawsuit in court, instead of arbitration, because her lawyers have argued that she agreed to pursue claims against Fox News in arbitration but not against Ailes himself.  And her lawsuit is against Ailes, not Fox News.  But that has not stopped Ailes’ attorneys from aggressively trying to push the case out of the public eye and into arbitration.

The arbitration agreement that Carlson signed is remarkable because of the scope of confidentiality it requires.  Normally, arbitration agreements keep cases out of the public eye because they require workers to bring their claims before a private arbitrator, instead of the public court system.  However, the arbitration agreement that Carlson signed forbids her from disclosing what happened to her to anyone outside of the arbitration proceedings.  Cliff Palefsky, a lawyer who heads the National Employment Lawyers Association’s task force on mandatory arbitration, calls this level of confidentiality a “gag order” and argues that it should be unenforceable because it goes against public policy.

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The New York Times recently ran a three part series of articles “examining how clauses buried in tens of millions of contracts have deprived Americans of one of their most fundamental constitutional rights: their day in court.” Corporations deprive Americans of this constitutional right by putting arbitration provisions in contracts, employment applications, and other agreements that consumers and workers agree to often because they have no real choice or do not understand what rights they are signing away. When consumers and workers submit to these arbitration agreements and the corporations they purchase things from or who they work for violate their rights, they have to bring their claims before an arbitrator, often a lawyer who represents corporations, instead of in court.

We have reported on this practice in the past but the New York Times articles provide numerous examples of the unfairness of forced arbitration. One example involved the sex discrimination case of Dr. Deborah Pierce against the medical group that fired her. One significant concern about arbitration is that arbitrators rely on employers for repeat business and, thus, they have an incentive to rule in favor of employers. Dr. Pierce noticed that when she arrived to an arbitration hearing in her case, the head of the medical group she was suing was having a friendly cup of coffee with the arbitrator. During the arbitration proceedings, among other things, the arbitrator fined the medical group $1,000 for destroying evidence but then billed Dr. Pierce $2,000 for the time it took him to look into the destruction of evidence. The arbitrator ultimately ruled against Dr. Pierce and his arbitration decision tracked verbatim some of the language in the medical group’s briefing.

The New York Times articles also explain how corporations have used arbitration to remove the rights of workers and consumers to bring class actions. Proponents of arbitration argue that individuals can bring their individual claims to arbitration and that class actions are not necessary. This argument does not hold up to scrutiny particularly when you consider it in the context of consumer cases. Many consumer cases involve corporations imposing unlawful fees which, for one individual, are relatively small. In those instances, without the ability to file a class action that bundles many individual claims into one lawsuit, the corporation will basically escape liability because it is not worth it for any one individual to file an arbitration claim for such a little sum of money. As one federal judge put it, “only a lunatic or a fanatic sues for $30.”

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Earlier this year, a federal appeals court in the Midwest issued a decision that allowed an employer to potentially escape liability for illegally depriving its employees of wages.  The case involved a chain of restaurants called Gusano’s Pizza that allegedly used an illegal tip pooling scheme to deprive employees of lawfully earned wages.

A group of former employees filed the case against Gusano’s as a “collective action” under the federal Fair Labor Standards Act (FLSA).  In a FLSA collective action, workers must express their desire to join the case as a plaintiff, which is sometimes called “opting in” to the case.  This “collective action” procedure differs from a traditional class action.  In a traditional class action courts presume that workers want to be part of the case unless the workers express their desire to “opt out.”  FLSA does not allow workers to bring a traditional “opt out” class action; they must use the “opt in” collective action procedure in order to band together in a case against the employer.

After the former employees filed their FLSA lawsuit against Gusano’s, the restaurant chain made its employees enter into an arbitration agreement that required the employees to bring FLSA claims in arbitration.  Unless a Gusano’s employee openly defied the wishes of his employer and refused to agree to this arbitration agreement, he could no longer opt in to the former employees’ collective action because the agreement required him to bring his wage theft claims in arbitration.

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IBM recently discontinued its longstanding practice of including in its severance packages a disclosure of the ages and job titles of the other employees it had decided to lay off.  IBM made these disclosures in order to comply with the Older Workers Benefit Protection Act (OWBPA).  29 U.S.C. sec. 626(f).  It has now decided to comply with the OWBPA in a different way: requiring laid off workers who accept severance packages to pursue age discrimination claims in arbitration, instead of court.

IBM has been no stranger to age discrimination lawsuits. Several years ago, it faced a class action age discrimination lawsuit which alleged that it discriminated against older workers when it instituted layoffs.  More recently, a single plaintiff prevailed in an age discrimination lawsuit against IBM and received a verdict of about $2.5 million.

Arbitration is an “alternative dispute resolution” process where a privately hired arbitrator, usually a lawyer, presides over the trial and decides which party should win.  Instead of a jury, the arbitrator decides both whether the defendant broke the law and how much money to award to a successful plaintiff.  Many corporations have chosen to compel their employees to agree to arbitration because the corporations enjoy built-in advantages in arbitration that they do not enjoy in court.  Because of these built-in advantages, many of these corporations require all employees to agree, as a condition of their employment, to pursue any claims against the corporation through arbitration.

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Yesterday, the First Circuit Court of Appeals held that a group of janitors must pursue their claims against the cleaning company that employed them in arbitration, rather than through the court system. The janitors have brought claims against the company, Coverall North America, Inc., because they claim, among other things, that it misclassified them as independent contractors and, as a result, failed to pay them all of the wages the law required it to pay. The Court determined that the janitors agreed to pursue these types of claims in arbitration when they signed an agreement with the company which referenced another agreement–an agreement the janitors never saw–that contained an arbitration clause. In reaching this holding, the Court reversed the decision of the U.S. District Court in Massachusetts which had held that the janitors could not be bound by this arbitration agreement because they had no notice of its existence.

Arbitration agreements have become more and more common. Employers that compel employees to sign these arbitration agreements essentially require the employees to give up their constitutional right to a jury trial as a condition of their employment. Many employers require their employees to sign these arbitration agreements because, in some respects, the arbitral forum is more beneficial to employers than the courts. Employers prefer arbitration for many reasons such as the fact that it is private, outside of public view; employees have less opportunity to gather evidence against the employer in arbitration; and employers prefer to defend claims before arbitrators who they pay and who may depend on the employers for repeat business.

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Yesterday, Judge Torresen of the U.S. District Court of Maine held that Great Falls Insurance Company’s former CEO must pursue his age discrimination and related employment law claims against the company, and others affiliated with it, in arbitration. An arbitrator is a private individual, not affiliated with the courts, who essentially serves as judge and jury in cases where the parties agree to such a procedure. For a variety of reasons, many believe that arbitration is an unfair process for employees.

Van Curan opposed Great Falls’ motion and argued that the judge must decide whether the arbitration agreement he signed was enforceable. Judge Torresen reasoned that the arbitration agreement incorporated the Employment Rules of the American Arbitration Association and those rules permit arbitrators to decide whether an arbitration agreement is enforceable. Furthermore, Judge Torresen held that even some of the defendants who did not sign the arbitration agreement could take advantage of it anyway because Van Curan had argued that Great Falls and these other defendants were actually all part of the same enterprise.

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Last week, the First Circuit Court of Appeals, which rules on federal appeals from Maine, other New England states, and Puerto Rico, held that an arbitrator would need to decide whether an employer’s arbitration agreement could shorten the statute of limitations on claims against it.

In this case, the plaintiff claimed that his former employer, a hotel in Puerto Rico, unlawfully retaliated against him because he filed a discrimination complaint with the U.S. Equal Employment Opportunity Commission (EEOC). As a condition of his employment, the hotel had required the employee to sign an arbitration “agreement.” (It is called an “agreement” even though employees usually don’t have much choice but to agree because, if they don’t, the employer won’t hire them.) Arbitration agreements require employees to bring claims against their employers before a private arbitrator, instead of before a public court. The particular arbitration agreement at issue in this case also shortened the statute of limitations for the employee’s retaliation claim from 3 years to 1 year. If enforced, this shortened statute of limitations would bar the employee’s claim.

Some courts have held that employers cannot legally use an arbitration agreement to shorten the statute of limitations of claims against it. The First Circuit, however, decided that in this case the arbitrator, instead of the court, would need to decide whether it was legal for the employer to shorten the statute of limitations. Employers prefer arbitrators to make these decisions, in part, because they usually pay the arbitrators and they bring arbitrators repeat business. So, arbitrators have a financial incentive to side with employers.

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On April 5, the United States District Court in Bangor rejected the University of Phoenix’s attempt to force a former employee to bring his case against it before a private arbitrator, instead of in court. The University of Phoenix based its argument on a provision in the employee handbook that it required employees sign as a condition of their employment. The provision stated that employees had to bring any claims against the University of Phoenix before a private arbitrator instead of filing them in court. However, the employee handbook also contained a provision which said that the University of Phoenix could change the terms of the handbook any time it wanted. The handbook also did not require the University of Phoenix to even notify employees before it made any changes to it.

The court refused to enforce the arbitration provision in the employee handbook. In order for an arbitration agreement in an employee handbook to be enforceable, it has to contain obligations for both the employee and the employer. In this case, since the University of Phoenix could change the terms of its employee handbook any time it wanted, it could avoid any obligations that the handbook required of it. When an employer reserves the right to change its employee handbook any time it wants and also does not even give employees a chance to decide whether they want to continue to work for it after it makes a change, the arbitration provision in the handbook is unenforceable.

The University of Phoenix is one of many employers who have decided to force employees to give up their Constitutional right to bring a case against it in court if it violates their rights. Employers prefer arbitration for many reasons such as the fact that they are private, outside of public view; employees have less opportunity to gather evidence against the employer in arbitration; and employers prefer to defend claims before arbitrators who they pay and who may depend on the employers for repeat business.