Not Cheaper, Not Quicker: Pitfalls of Mandatory Arbitration

Alternative dispute resolution became all the rave for a cheaper and quick route to solve legal issues. Employers bought into the idea quite heavily under the misunderstanding that arbitration is faster, less formal, and less expensive than bringing a case to court. But, this may not always be true.

It is important for all parties to clearly think their options through before deciding what to do - just because arbitration is an available option does not mean it is always the best one. Take for example, the 11th Circuit Court of Appeals case Hernandez v. Acosta Tractors, Inc., No. 17-13057, 2018 WL 3761126 (11th Cir. Aug. 8, 2018). In that case, Julio Hernandez claimed that his employer, Acosta Tractors, failed to pay him overtime, and he brought an action in federal court under the Fair Labor Standards Act ("FLSA").  Acosta Tractors moved to dismiss the case because Mr. Hernandez signed an arbitration agreement. The judge agreed and dismissed Mr. Hernandez’s case in favor of arbitration.

Once in arbitration, things started to go poorly for Acosta Tractors. Mr. Hernandez was one of three employees who were arbitrating FLSA claims. Acosta Tractors asked the arbitrator to consolidate the three proceedings into one, but the arbitrator refused. Then, the arbitrator refused to limit discovery, resulting in the taking of 29 depositions in the three separate proceedings. 

It is important for parties to understand that an arbitrator is essentially a judge on retainer. Meaning that when they work on a case, arbitrators bill the parties for their work. And, if a third-party organization like the American Arbitration Association or Henning Mediation & Arbitration Service, Inc. is involved, they will charge for their work managing the case as well. Neither of these two costs are applicable in court proceedings.

Acosta Tractors soon received bills for administrative fees of over $100,000.00 for Mr. Hernandez’s case and the other two similar cases, much much more than the amounts in dispute for the claimants. Acosta Tractors refused to pay the arbitration fees, and then asked the federal judge to return the matter to court on the grounds that "the Arbitration of this matter has failed of its essential purpose."  The judge declined, ruling instead, that Acosta Tractor defaulted in arbitration, and thus was also in default in federal court.  The judge entered a default judgment in Mr. Hernandez’s favor in the amount of $7,293.00.

On appeal, the Eleventh Circuit reversed, finding that the trial judge should not have entered a default judgment based solely upon the failure to pay administrative fees in arbitration. Instead, the Eleventh Circuit directed the trial judge to determine whether Acosta Tractors “acted in bad faith in choosing not to pay its arbitration fees.”  The court noted that "[a] calculated choice to abandon arbitration after getting adverse rulings from the arbitrator certainly looks like forum shopping." 

In this case, Acosta Tractors was billed $25,875 in administrative fees on an overtime claim that was worth $7,293.00.  In the end, this is $18,582 Acosta Tractor could have saved by either settling the claim, or by keeping this FLSA case in federal court. This demonstrates that the decision to arbitrate a claim is not a guarantee that the arbitration will be less expensive than an action in court, or that it will be less onerous in the discovery stage.

The biggest lesson for employers to learn from Hernandezis the need to consider the cost of arbitration both when drafting agreements and in seeking to enforce them. Arbitration may be expensive for all parties, especially the employer who is usually on the hook for arbitrator and administrative fees. A carefully drafted arbitration agreement can include terms such as fee-sharing, limited discovery and right of appeal ensure that arbitration lives up to the ADR hype.

Does Title VII Include Discrimination Based on Sexual Orientation?

By Hauwa Adamu

In Bostock v Clayton County and Evans v Georgia Regional Hospital, the US Court of Appeals for the Eleventh Circuit held that reliance on Title VII of the Civil Rights Act of 1964 as prohibiting discrimination on the basis of sexual orientation failed to state a claim recognizable under law. 


Evans v Georgia Regional Hospital

Jameka Evans worked at the Hospital as a Security Officer from August 2012 to October 11, 2013. During her time at the Hospital, she was discriminated against on the basis of her sex and targeted for termination for failing to carry herself in a “traditional womanly” manner. She experienced a hostile work environment. She was denied equal pay or work, harassed and physically assaulted.

Although she was a gay woman, she did not broadcast her sexuality. However, it was evident that she identified with the male gender, because of how she represented herself. Evans was punished because her status as a gay female did not comport with the Hospital’s gender stereotypes.

Evans lodged a complaint with the Human Resource department about some adverse treatment at work. Shortly thereafter she also complained that she was harassed and retaliated against because of her complaint. HR indicated that the Hospital had investigated Evans’ complaint, and had found no evidence that she had been singled out or targeted. Evans voluntarily resigned.

Bostock v Clayton County

Gerald Bostock, a gay man, began working for Clayton County, Georgia, as a child welfare service coordinator in 2003. During his 10-year tenure at Clayton County, Bostock received positive performance evaluations and numerous accolades. In 2013, Bostock began participating in a gay recreational softball league. 

During a meeting in which Bostock’s supervisor was present, at least one individual openly made disparaging remarks about Bostock’s sexual orientation and his participation in the softball league. Around the same time, Clayton County informed Bostock that it would be conducting an internal audit of the program funds he managed as part of his job.

Shortly after, Clayton County terminated Bostock allegedly for conduct unbecoming of its employees. Bostock filed a charge of discrimination with EEOC following which, he filed a pro se lawsuit against the County alleging discrimination based on sexual orientation, in violation of Title VII.

The Courts

In Evans, at the United States District Court for the Southern District of Georgia, Magistrate judge Smith issued a report and recommendation (R&R) dismissing Evans Complaint for failure to state a claim. The Judge concluded that while same-sex harassment can be actionable under Title VII, Title VII discrimination claims based upon the plaintiff’s sexual orientation or perceived sexual orientation is not. Judge Randall Hall concurred with Judge Smith’s R&R and dismissed Evan’s case. 

The Eleventh Circuit Court of Appeals rejected Evans request for an en banc rehearing, stating that Evans’ pro se Complaint failed to plead facts sufficient to create a plausible inference that she suffered discrimination. It stated: “Evans did not provide enough factual matter to plausibly suggest that her decision to present herself in a masculine manner led to the alleged adverse employment actions.” 

Evans then filed a petition for certiorari, requesting review from the SCOTUS. Regardless of the fact that several friends-of-the-court briefs were filed urging the SCOTUS to hear the case, including briefs from 79 businesses and organizations, the Court denied review of the case, leaving for another day resolution on whether Title VII prohibits discrimination based on sexual orientation.

In Bostock, the US District Court for the Northern District of Georgia and the Eleventh Circuit Court of Appeals dismissed the case in the same grounds.

After more than nine conferences during which the US Supreme Court could have acted on the petition for review, the SCOTUS has granted review in this case and two others that concern anti-LGBTQ employment discrimination. The cases will be heard in the Court’s 2019-2020 term to create a binding precedent and decide the issue for all courts.