Kentucky Employment Law Blog

Why Arbitration is Inherently Biased Against Employees

The Washington Post runs a good article on the inequities, no, let me be blunter, the inherent unfairness against employees of the arbitration system for employment matters such as discrimination, sexual harassment and retaliation: Mandatory arbitration cases have soared during the pandemic. Inherent unfairness, structural bias is another way to put it, is a strong assertion so let me explain.

 

The basic fundamental problem with arbitration is that the arbitrators make their living by being arbitrators and this creates an incentive, tolerated nowhere else in our justice system, for the arbitrators to favor the repeat players, the corporations.

 

When an arbitration is commenced, the parties are sent a list of 8-10 arbitrators and permitted to reject some number, perhaps 3 or 4. Since arbitrators are making their living by arbitrating, they don't want to be rejected by either party, they want to be selected and get paid. The best way to serve this interest is to be known as favoring the repeat players, the corporate powers.

 

The Family Dollar corporation discussed in the Washington Post article illustrates the point. If an arbitrator wants to be selected to arbitrate a case and to make money and their living by doing so, he or she is going to favor the party that is going to have thousands of cases per year arbitrated, as opposed to the individual employee who is very unlikely to have more than one in their lifetime. If an arbitrator is thought by Family Dollar to be pro-employee, a view that the company can be expected to take even if the face of the most correct, fairest ruling, Family Dollar will reject them, he or she will not serve on the case and won't get paid. So the arbitration system is fundamentally and inherently skewed in favor of the corporations.

 

The notion of equal justice under law is just not served by the widespread use of forced arbitration. Congress should act, but that is only slightly more likely, given sure-fire Republican opposition in the Senate, than any reader of this post buying soon a winning lottery ticket. 

Robert L. Abell
www.RobertAbellLaw.com

Arbitration: The Right to an Unfair Trial

A picture, as they say, can be worth a thousand words:

This comes from our friends at Daily Kos.

Robert L. Abell
www.RobertAbellLaw.com

Employer's Failure to File Alleged Arbitration Agreement In the Record Dooms Its Effort to Compel Arbitration, Sixth Circuit Rules

Robert Kay filed an age discrimination suit against his former employer, The Minacs Group.  Minacs responded with a motion to compel arbitration. In support of its motion, the employer tendered a "Receipt of Policies and Procedures" signed previously by Kay for a previous employer that had been acquired by Minacs, which by its terms applied only to claims "arising out of or relating to these Policies and Procedures." The district court ordered Kay to arbitrate his age discrimination claim. But the Sixth Circuit reversed in Kay v. The Minacs Group, No 13-1974 (September 5, 2014).

The Sixth Circuit was critical of the employer's litigation tactics:

This appeal exists largely because of troubling litigation behavior by Minacs. Minacs provided the court with the [previous employer's] Receipt but not [the previous employer's] Policies and Procedures handbook even though the Receipt's arbitration provision applies only to claims "arising out of or relating to these policies and procedures." Due to Minacs's omission, we have no idea what the [previous employer's] handbook covers and so have no idea what kind of claims the arbitration clause covers. Minacs, moreover, must have had copies of its own receipt and handbook, which suggests that Minacs would have known that the [previous employer's] receipt had been superseded by its own and that Kay's claims were not subject to arbitration. This crucial information should have been a part of the record.

This omission – an omission that included the actual language defining the scope of the alleged arbitration agreement – doomed the employer's effort to compel arbitration, as the Sixth Circuit explained:

On its face, then, the scope of the arbitration provision is easy to discern: Kay and [the previous employer] agreed to arbitrate only those disputes that arise from or relate to whatever is in the Policies and Procedures handbook. Minacs did not put the rest of the handbook into the record, so we have no way of knowing whether civil rights claims are covered by the handbook. Arbitration provisions, like any other provision, must be interpreted in the context of the whole contract.

Given Minacs's omission, we construe the provision literally and conclude that the arbitration provision does not cover Kay's civil rights claims because there is no contract language indicating that his claims arise from or relate to the employee handbook. Further, Kay's complaint does not allege a "policy or procedure," it alleges age discrimination on the part of Kay's immediate supervisor.

The Sixth Circuit pointedly rejected the employer's argument that the record's ambiguity regarding the scope of the arbitration agreement weighed in favor of arbitration:

Remarkably, Minacs argues that the presumption of arbitrability compels the court to resolve this "ambiguity" in favor of arbitration. Presumptions and canons of construction do not relieve a party of its responsibility to provide the court with the entire contract at issue and do not supplant a lawyer's duty of candor to the court.

The Sixth Circuit reversed the district court's order compelling arbitration and remanded "the case for further proceedings on Kay's civil rights claims." One wonders whether the terms of this remand precludes Minacs from again moving to compel arbitration and submitting on this second g0-round the handbook that it previously failed to file in the record. Kay would appear to have an argument that Minacs has forfeited its right to do so. Or it may be, as the Sixth Circuit suspected, that the actual handbook does not support the employer's motion to compel arbitration. We'll see.

The Sixth Circuit's opinion was authored by Circuit Judge Jane Stranch and joined by Circuit Judge Deborah Cook and Senior Circuit Judge Gilbert Merritt.

Robert L. Abell
www.RobertAbellLaw.com

 

 

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False Claims Act: Sixth Circuit Rejects Arbitration of Retaliation Claims

An employer entered into identical employment agreements with two employees. Both employment agreements stated that they would establish "the terms and conditions of the employee's employment and further committed to arbitrate "any dispute, which arises under the terms of this agreement." After taking many actions in making many efforts to stem what they believe to be fraudulent activities, the employees were terminated. They filed suit under the anti-retaliation provisions of the False Claims Act, 31 USC 3730. The employer, BAE Systems Technology Solutions & Services, sought to compel arbitration, a motion the district court granted. The Sixth Circuit reversed in U.S. ex rel. Paige v. BAE Systems, No 13-2237 (May 22, 2014).

The employment agreement committed the employees to arbitrate "any dispute, which arises under the terms of this agreement." The Sixth Circuit ruled that the agreement did not reach the relator's retaliation claims under the False Claims Act for three reasons:

   (1) the "claim is purely statutory and exist independent of" the employment agreement;

   (2) "the employment agreement nowhere refers to the False Claims Act, retaliation or statutory claims; and,

   (3) the arbitration provision in the employment agreement is narrower than those in cases where broadly-worded arbitration clauses applied to claims "related" to the agreement or that arise out of the employment relationship between the parties.

The Sixth Circuit's opinion was authored by Circuit Judge Helene White and joined by Circuit Judge Raymond Kethledge and Senior Circuit Judge Richard Surheinrich. 

Robert L. Abell
www.RobertAbellLaw.com

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Does a New Arbitration Agreement Apply to an Already Pending Lawsuit?

Does an arbitration agreement that covers "all employment-related disputes" entered into between an employer and an employee apply to an already pending class action lawsuitby the employee against the employer? The Sixth Circuit recently answered this question "no" in Russell v. Citigroup, Inc, No 13-5994 (April 4, 2014).

Keith Russell worked from 2004 to 2009 for Citicorp at a call center. In January 2012, Russell filed a class action against the company seeking unpaid wages and overtime relating to time employees "spent logging into and out of their computers at the beginning and end of each work day." There existed, at the time, an arbitration agreement between Russell and Citicorp, but it did not apply to a class action lawsuit. Later in 2012, Russell applied to work again at Citicorp's call center. He was hired and signed an updated arbitration agreement that covered class claims as well as individual ones. When the lawyers representing Citicorp in the class action discovered the newly-entered arbitration agreement with Russell, they moved to compel arbitration of the pending class-action. The district court denied the motion for arbitration, and Citicorp took an interlocutory appeal authorized by 9 U.S.C. 16(a).

The Sixth Circuit affirmed denial of the motion to compel arbitration. First, the court noted that the agreement applied to employment claims that "arise", a present-tense usage suggesting "that the contract governs only dispute that began – that arise – in the present or future. The present tense usually does not refer to the past." Second, the "common expectations of the parties reinforced the point" that the agreement applied only prospectively, the court explaining that "Russell's behavior – signing the contract without consulting counsel and carrying on with the lawsuit as before – would make little sense of Russell understood the contract to cover the case at hand." Also, the court observed that the retroactive application of the arbitration agreement would raise ethical issues for Citicorp's counsel as it had presented Russell with the new arbitration agreement without going through Russell's counsel in the class action case. As the court put it: "Did Citicorp expect the contract to bear a meaning that would even raise these [ethical] issues? Again, not likely."

Third, the Sixth Circuit discussed how the expectations of parties to a contract determine its meaning:

... Citicorp offers no evidence that it did expect the contract to govern pending lawsuits. In the final analysis, that leaves a situation in which one party (Russell) certainly and the other party (Citicorp) likely expected the contract to govern only lawsuits still become. This common understanding fixes the meaning of the contract. See Restatement (Second) of Contracts sec. 201(1).

Finally, the court disposed of Citicorp's reliance on the axiom that "any doubts concerning the scope of arbitrable issues must be resolved in favor of arbitration":

In arbitration contracts, "as with any other contract, the parties' intentions control."

A court must interpret a provision in a contract not in isolation, but against the backdrop of "the contract as a whole, ... the situation of the parties and the conditions under which the contract was written." The Federal Arbitration Act's presumption of arbitrability does not cut this process short. It is a presumption, not a clear-statement rule. That is why one of two things – either "an express provision excluding a specific dispute" or "forceful evidence of a purpose to exclude the claim" – may take a case beyond the domain of an arbitration clause. "Forceful evidence" describes just what we have here. 

The Sixth Circuit's well-written and reasoned opinion was written by Circuit Judge Jeffrey Sutton joined by Senior Circuit Judge Gilbert Merritt and Circuit Judge Richard Griffin.

Robert L. Abell
www.RobertAbellLaw.com

 

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Discrimination Claims Not Barred by Arbitration Decision

    Is an employee barred from bringing claims in a lawsuit under anti-discrimination statutes because of an adverse ruling by an arbitrator under a union contract?  "No," the Sixth Circuit ruled and reiterated recently in Nance v. Goodyear Tire & Rubber Company (decided May 23, 2008). 

    The employee, Nance, suffered from a variety of medical problems following a work-related injury.  She attempted and failed to return to work due to these problems.  The company fired her and asserted that she violated a "no call, no show" rule and had "resigned without notice" under a union contract.  She filed a grievance, it went to arbitration and the arbitrator ruled that her firing did not violate the union contract.  Nance then filed suit, claiming, among other things, that her firing violated the Americans With Disabilities Act and other laws.  The trial court dismissed the case, ruling that her claims were barred by the arbitrator's adverse decision.  This was error, according to the Sixth Circuit.

    The court first noted that Nance's rights under the union contract were of a "distinctly different nature" than the "independent statutory rights" accorded by the anti-discrimination statutes.  Second, an arbitrator is not competent to adjudicate claims under anti-discrimination laws: "the expertise of arbitrators lies in the application of facts to the terms of an employee's contract or collective bargaining agreement [and] the expertise of federal courts lies in the application of facts to anti-discrimination statutes."  Furthermore, the court added, the irregular procedures used in arbitration -- the absence of the right to trial by jury, the usual absence for an arbitrator to explain their decision, the truncated and incomplete records usually generated in arbitration proceedings, the limited judicial review and the spotty application of evidence and other rules -- were generally inadequate to assure protection of the important rights guaranteed under anti-discrimination statutes.  However, the court did allow that evidence of an arbitrator's decision could be considered depending on the degree of procedural fairness, the adequacy of the record and the particular expertise of the arbitrator.

Robert L. Abell
www.robertabelllaw.com

 

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