Articles Posted in Arbitration

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Misclassifying employees as exempt from overtime requirements is bad enough on its own, but the damage done can be compounded when the inaccurate status prevents employees from bringing their grievances against their employer to a court of law.

That’s what happens when employees are forced to sign arbitration agreements, which have become increasingly common throughout all American industries. Having started out as a way for businesses to resolve disputes between each other, companies have increasingly been expanding their interpretation of the Federal Arbitration Act to include relationships between businesses and individuals, such as their employees. Most employment contracts now contain arbitration clauses that require workers to use arbitration to settle all disputes with their employer.

There are several problems with this, with the biggest one probably being the fact that arbitration agreements prevent a lot of cases from ever getting a hearing. Because arbitration is not equipped to handle class actions or collective actions, individuals with small claims against their employer don’t have the opportunity to combine their claims in order to justify the costs of filing the complaint. Without this protection, many small claims go unresolved. Continue reading

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As arbitration agreements between employers and their workers become increasingly common, more and more companies are requiring employees to sign the agreements as a condition of employment. This leaves workers in a tough spot because, although they are technically signing the agreement of their own free will, for those who are in desperate need of a job the option to sign an arbitration agreement or continue looking for work isn’t much of a choice at all.

Tania G., a former warehouse worker for Michael Kors, filed a class action wage and hour lawsuit against her former employer for allegedly denying her and other warehouse workers minimum wage, overtime pay, and regular breaks throughout the day, as required by both the federal Fair Labor Standards Act (FLSA) and California labor law. Michael Kors had the suit moved to federal court and is now trying to get it banned from the courts altogether and moved into arbitration in accordance with an arbitration agreement Terry G. allegedly signed as part of her employment contract. Continue reading

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Normally, when a party involved in a lawsuit appeals the decision, it’s because that party lost their case in the lower courts and are hoping the higher court will be more favorable to their side of the argument. The winning party does not usually encourage the higher court to reopen their case case, but that’s exactly what Murphy Oil USA Inc. is doing after the Fifth Circuit Court ruled in its favor in a lawsuit against the National Labor Relations Board (NLRB).

The NLRB sued Murphy Oil, saying the mandatory arbitration agreements included in its employment contracts illegally denied workers their right to file a class action lawsuit against the oil company. The Fifth Circuit ruled in Murphy Oil’s favor, saying the Federal Arbitration Act gave businesses the right to settle disputes in arbitration, rather than in the courts.

The problem is the Federal Arbitration Act was designed to allow businesses to settle disputes with other businesses in arbitration, not for businesses to settle disputes with individuals. Furthermore, arbitration does not allow plaintiffs to combine their claims into class actions, which means many small claims never get the chance to be resolved through either arbitration or trial because they’re too small to justify the costs of bringing the suit. Continue reading

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Although courts across the country don’t always agree on whether arbitration agreements with employees should be enforced as a general rule, sometimes the fate of a particular arbitration agreement lies in a technicality. In the case of a recent proposed class action wage and hour lawsuit against Century Fast Foods Inc., a Taco Bell franchisee, that technicality revolves around the ambiguity of the term “related companies.”

Jesus M., a former employee who worked at a Taco Bell restaurant owned by Century, filed a wage and hour lawsuit on behalf of himself and all other similarly-situated current and former employees of the franchisee for allegedly denying them overtime, legally-mandated rest breaks under California labor law, and other claims. Century tried to invoke the arbitration agreement Jesus signed when he filled out an application to work for Taco Bell, but so far two courts have denied the company’s petition.

According to Century, Jesus signed a contract that included an agreement to use arbitration to settle all disputes with Taco Bell, as well as its related companies. The problem, according to the courts, is defining the term “related companies.” First the Los Angeles Superior Court said in 2015 that Century failed to prove it qualified as a “related company” of Taco Bell. Century appealed the decision and the case went before a California appellate court, which upheld the lower court’s ruling.

According to the appellate court, Century failed to provide sufficient evidence that there was an agreement between itself and Taco Bell that Century was a related company of Taco Bell. In it’s published decision, the court also pointed out that it had not seen sufficient evidence that Jesus could reasonably be expected to understand that Century was a related company of Taco Bell, and therefore subject to the arbitration agreement he had signed with the fast food chain. Instead, the court suggested it would have been more convincing if the franchisee had provided a separate contract for employees to sign that included an arbitration agreement between Century and its employees. Continue reading

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The divide between the federal circuit courts that support arbitration agreements in employment contracts and those that don’t continues with the Fifth Circuit Court’s recent decision to uphold its previous rulings in favor of arbitration agreements.

Arbitration was developed as a way for businesses to settle their disputes between each other outside of the court, but companies have increasingly been including arbitration agreements with their customers and employees.

The problem with requiring individuals to agree to settle all disputes in arbitration is that arbitration is designed for businesses, not individuals, and so it disproportionately favors businesses. To start with, arbitration is not designed to be able to handle class actions, which means every claim filed against a company in arbitration has to be brought individually. Because most individual claims against a company are relatively small, the cost of bringing the complaint to arbitration exceeds the amount of the claim more often than not.

Because arbitration is handled privately, it also prevents other similarly-situated employees from learning when one of their coworkers has succeeded in attaining compensation for a claim they brought against the company. Because so many employees are unaware of all the labor laws protecting them, they are often unaware of all their rights as workers, and class action lawsuits can be an extremely effective way to alert fellow employees when their rights may have been violated. Continue reading

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The National Labor Relations Act (NLRA) grants all employees working in the U.S. the right to file any claims against their employer as a class action or collective action lawsuit. These types of lawsuits allow many employees with similar complaints against their employer to combine their claims into one large lawsuit. In doing so many employee complaints can come to the attention of the courts and the public that would not otherwise have that chance. Many employees aren’t aware of all their rights under the law, and even if they are aware, their complaints tend to be too small to justify the expense of filing an individual lawsuit.

On the other side of the spectrum is arbitration, which was initially designed for businesses to settle legal disputes among themselves outside of court. Arbitration is handled by an arbitrator who is supposed to be fair and unbiased, but the reality is not always so ideal. Arbitrators are in business to make money and can potentially be biased towards the party that brings them a lot of business, even if they’re unaware of that bias. Arbitration is private (neither the claims nor the results are made public), offers no explanation for the ruling, no opportunity to appeal the decision, and no class actions or collective actions.

Companies have increasingly been including arbitration agreements in their employment contracts to prevent their employees from filing class action lawsuits. Employee advocacy groups have argued these agreements unfairly burden employees by preventing most employees from being able to file any claims against their employer. Continue reading

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The National Labor Relations Board (NLRB) is a board formed by the federal government designed to protect employees working in the United States. The NLRB can form opinions and weigh in on various legal matters, but it does not have any jurisdiction and it has limited power to enforce any of its decisions.

Recently, the NLRB ruled that employment agreements that require workers to settle any disputes with their employer in arbitration are illegal and should be unenforceable in a court of law. Because the arbitration system is not equipped to handle class action or collective action lawsuits, the NLRB argues arbitration agreements deny employees their right to class action lawsuits, which is granted them in Section 7 of the National Labor Relations Act.

The Fifth Circuit Court has largely overturned the past few rulings made by the NLRB and allowed arbitration agreements between companies and their employees to stand. But the Seventh Circuit Court recently made a ruling that’s in line with what the NLRB has been saying all along. The Seventh Circuit Court ruled that Epic Systems’s arbitration agreement with their employees unfairly benefited Epic Systems and denied the employees their rights under the law. Continue reading

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The Federal Arbitration Act was put in place in 1925. It provides a formal, private setting for businesses to hash out their disputes with each other without resorting to the courts. It’s more cost effective for the businesses and saves the courts time and money by preventing them from getting flooded with business disputes.

An arbitration agreement is a clause included in a contract that states that, in the event of a dispute, the two parties will settle their differences in arbitration, rather than in court. These types of agreements have been common in contracts between businesses ever since the FAA was enacted in 1925, but over the past decade or so, more and more companies have been stretching their interpretation of the 1925 federal law to mean a business can force arbitration with anyone they do business with. They have been including arbitration agreements in their contracts with consumers and employees alike, but many advocacy groups have been arguing that forcing individuals to settle their disputes with large companies in arbitration puts the individuals at a severe disadvantage.

To start with, arbitration does not allow for class actions, which means any employee with a small claim does not have the ability to combine their claims with other individuals with similar claims. Many people with small claims who signed arbitration agreements simply forgo pursuing the matter because their claim doesn’t justify the costs of bringing a suit. Continue reading

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As corporations and individuals have continued to argue over whether companies can force its customers and employees into arbitration, the courts have been flooded with allegations of breach of contract, often accompanied by one of the parties pointing to an arbitration agreement.

An arbitration agreement is a clause included in a contract that requires the parties involved to settle any disputes in arbitration, rather than in court. Arbitration was originally intended to allow businesses to handle their disputes with other businesses without crowding the courts. But in recent years, corporations have been including arbitration agreements in everything from loan contracts to employment contracts. Bringing another business into arbitration to settle your differences is one thing, but individuals usually suffer from a distinct disadvantage when they try to go up against large corporations because they don’t have access to the same resources.

To make matters worse, arbitrators are not always the impartial third parties that judges and juries tend to be. There are arbitration companies that have a reputation for being fair and unbiased, but not all of them. Because arbitration companies are in business to make a profit, a tendency to rule in favor of the party that continues to bring them business, even if it’s an unconscious bias, is a common occurrence. Continue reading

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One of the key reasons class action advocates are against arbitration agreements centers around the fact that arbitration is not equipped to handle class actions and collective actions, which immediately prohibits many plaintiffs from being able to file class claims.

Although arbitration is significantly less expensive than litigation (which is why so many corporations prefer to use it), it is still frequently more costly than claims most individuals can file for. Although a few hundred dollars may very well be a significant amount to that individual, it is rarely enough to justify the costs of arbitration, much less litigation.

Class actions and collective actions are therefore an important tool for plaintiffs with claims against large corporations. By cheating employees or consumers out of small amounts of money, companies can reap huge profits through unfair business practices. It also allows the companies to escape justice because their illegal practices never come to the attention of the courts, which means they can continue taking advantage of people.

Although arbitration was initially intended as a cost-effective way for businesses to handle disputes among themselves, more and more companies lately have been including arbitration agreements in everything from their employment contracts to their service contracts in order to escape the law. Continue reading