Arbitration is an Alternative System of Dispute Resolution

Arbitration is a private, alternative system of dispute resolution. In arbitration, the parties present their claims and defenses to one or more arbitrators who decide the matter. Typically, an arbitrator is an attorney or former judge who is paid a fee by one or more parties to serve as the arbitrator. The allocation of fees and expenses between the parties is typically outlined in the arbitration provision in the parties’ employment contract.

Many employers require their employees and executives to sign employment contracts or employment agreements that contain an arbitration provision. Generally, an arbitration provision requires an employee to assert any claims she or he might have against his employer in arbitration, rather than in state or federal court. An arbitration provision is usually, but not always, enforced by the courts.

Our Employment Lawyers Have Extensive Experience with Arbitration

Bill Masterson, a Kilgore & Kilgore attorney, recently successfully set aside an arbitration agreement in court. Bill Masterson argued that the arbitration agreement be voided because the employee who signed the agreement spoke only Vietnamese. The agreement was written in English. The case, Sang Nguyen v. Doskocil Manufacturing Company Inc., was heard recently in the Tarrant County court. The court ruled that, since the plaintiff did not understand the arbitration agreement, it must be set aside. If you have a question about arbitration or an arbitration provision in your employment agreement, click here Contact Kilgore & Kilgore to connect with an employment lawyer for a consultation.

Kilgore & Kilgore’s employment lawyers counsel and represent employees and executives who have arbitration agreements with their employers. We have litigated the enforceability an arbitration provisions. We have represented numerous executives in arbitration proceedings.

There are several private and non-profit organizations that administer arbitration proceedings. These organizations are often identified in an arbitration provision. Such organizations often supply a list of arbitrators that may be used for arbitration. In addition, these organizations often have their own procedural and discovery rules for arbitration.

Arbitration Compared with Trial

One significant difference between arbitration and trial is that the employee or plaintiff is no longer entitled to the right of trial by jury. A trial by jury usually is an employee or plaintiff’s right when a case proceeds in a courthouse. Some jurists or employers believe that arbitration is a faster, more efficient, and less expensive system of resolving disputes. However, in reality, arbitration proceeds at the same pace as a traditional court case. The legal and factual issues in arbitration can be just as complicated as in a court case. Arbitration proceedings are like formal court cases. Both processes can require pleadings, motions, discovery, and hearings. Both can be active for over a year. Thus, arbitration is often no less expensive or time-consuming than a traditional court case.

Arbitration May Be More Relaxed than a Formal Courtroom Trial

At the final hearing in arbitration, the parties present their evidence and examine their testifying witnesses in front of the arbitrator. While there is a fact finder, there is no judge in a black robe, courtroom, or jury. Instead, the final hearing is like an informal trial. The arbitration hearing may be held in an office or hotel conference room. Often, an arbitration provision identifies a specific city where the arbitration is to be conducted.
The rules of evidence may be relaxed at final arbitration hearings. After the final hearing, the arbitrator renders a decision. The arbitrator can also award monetary or other relief to a prevailing party. Often a prevailing party must go to court to enforce an arbitrator’s award. The legal standard in court for overturning an arbitrator’s award is extremely high.

Some Arbitration Agreements May Be Unenforceable

Some arbitration agreements prohibit employees from asserting collective arbitration or collective action in any forum. Many arbitration agreements require employees to bring claims, such as overtime pay claims, only through individual, piecemeal arbitration proceedings. Employers try to force this requirement on their employees to make it difficult for them to organize together and to assert a class action claim.
In an opinion dated May 26, 2016, the U.S. Court of Appeals for the Seventh Circuit held that an arbitration agreement between an employer and its employees for overtime pay claims violates the National Labor Relations Act, or NLRA. The Court also held that such an agreement is unenforceable under the Federal Arbitration Act, or FAA. The case is Lewis v. Epic Systems Corporation.

NLRA, FAA, Worker Rights and Arbitration

The NLRA was enacted in 1935 and provides workers with collective bargaining rights. The NLRA was designed to level the playing field for workers and their employers. Section 7 of the NLRA permits employees to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection. Section 8 of the NLRA enforces Section 7 by stating that any interference by an employer with an employee’s rights under Section 7 is an unfair labor practice.

In Lewis, the Seventh Circuit read the phrase concerted activities broadly to include collective or class remedies. Thus, the Seventh Circuit held that the arbitration agreement at issue in Lewis, which prohibited collective action, was unenforceable and in violation of Sections 7 and 8 of the NLRA.

The Seventh Circuit in Lewis also concluded that the NLRA was not in conflict with the FAA. The Seventh Circuit decided that because the arbitration provision at issue was illegal under the NLRA, the FAA did not require its enforcement. This Court also determined that the right to collective action in Section 7 is substantive, rather than merely procedural. An arbitration agreement that requires a party to waive a substantive right is unenforceable.

Courts are Split

The Lewis opinion is the law only in the Seventh Circuit. That means it is the law only in the federal courts in Wisconsin, Illinois, and Indiana. Texas, on the other hand, is within the Fifth Circuit. Thus, the Lewis opinion is not the law in the federal courts in Texas. In fact, the Fifth Circuit, in D.R. Horton, Inc. v. NLRB, came to the opposite conclusion from the Seventh Circuit. It held instead that Section 7 of the NLRA did conflict with the FAA.

There is a conflict of opinions in the federal circuits. They do not agree regarding the enforcement or not of arbitration and waiver provisions such as those at issue in Lewis and D.R. Horton. Thus, it may be up to the U.S. Supreme Court to decide this issue at a future date.

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