The Employer's Legal Resource: Federal Court Refuses to Enforce Employment Agreement Requiring Arbitration of Employment Claims because of Fee Shifting Language

09.01.16

Recently a federal court in Oklahoma had the chance to revisit the enforceability of arbitration agreements in employment contracts. Because the court found the employee may not obtain all of the relief to which she was entitled under federal law if she had to arbitrate, the court refused to send her claims to arbitration.

The employee sued Chili's Grill & Bar, alleging claims of sexual harassment and retaliation in violation of Title VII. Chili's moved to compel arbitration based on an agreement to arbitrate it claimed the employee signed electronically when she applied for employment. The employee fought the motion to compel arbitration on several grounds, one of which proved fruitful.

First, the employee claimed the arbitration agreement was ineffective because she did not remember reviewing or signing it. The Court noted the rule that evidence of an organization's routine practice is admissible to prove the organization acted in accordance with that practice on a particular occasion. Chili's submitted an affidavit of an employee who explained Chili's hiring process, which included having employees sign and submit electronic signature agreements and agreements to arbitrate. The employee did not challenge Chili's "standard practice evidence," and therefore the Court held that Chili's established an agreement to arbitrate existed.

Next, the employee argued she could not effectively vindicate her statutory rights under Title VII in an arbitration forum because she could not afford the costs of arbitration, including the fees of the arbitrators. The Tenth Circuit has held that while an arbitration forum is presumptively adequate to resolve statutory claims, an employee has to be able to effectively vindicate his or her statutory rights. While the arbitration agreement was silent concerning the payment of arbitration fees and administrative expenses, Chili's agreed to pay those fees and expenses in full, which the Court accepted.

Finally, the employee argued that under Title VII a court is to award reasonable attorney fees to a prevailing plaintiff. The Chili's arbitration agreement provided that the employee must pay her own attorney fees "unless otherwise awarded by the arbitrator." The Court found that the employee ran the risk of bearing her own attorney fees even if she prevailed on her claims. Because the employee showed she was financially incapable of bearing her own attorney fees, the Court held that the arbitration agreement prevented her from effectively vindicating all of her statutory rights. On that basis, the Court refused to enforce the arbitration agreement.

Arbitration agreements can be enforceable in employment contracts. However, those agreements must not take away or diminish the statutory rights of employees.

 

By Jon E. Brightmire, JBrightmire@dsda.com

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment litigation and counsels clients regarding everyday employment matters. 

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