Many corporations have arbitration agreements for non-union employees mandating that a claim in arbitration be resolved through a separate proceeding, and the employee is barred from participating in a class action or collective arbitration.  Having arbitrated FLSA, ERISA, Title VII discrimination and independent contractor/employee status matters, one thing is clear: be careful what you ask for, you may get it.

The U.S. Supreme Court ruled in Epic Systems v. Lewis that arbitration agreements which bar an individual from participating in a class action or collective arbitration are enforceable.[i]  The Court’s majority ruled that the Federal Arbitration Act provided that such agreements must be honored.[ii]  Presumably, under the same reasoning, arbitration agreements that either required or allowed class action or collective arbitration would also be enforceable.

Arbitration clauses are frequently written into employment agreements or business contracts by lawyers who never have arbitrated or litigated a case for a client.  More often, boilerplate arbitration clauses are cut and pasted from a previous contract with little or no attention paid to the practical ramifications of such a clause.

In the opposite situation, experienced attorneys for employers might decide to prohibit a class action or collective arbitration on the assumption that some, if not most, employees or former employees will not pursue an individual arbitration.  If that assumption is correct, the employer’s potential liability is reduced.  An additional strategic reason, at least for cases that are close either factually or legally, is that different arbitrators may come up with different rulings, again reducing the potential liability of the employer.

However, there are significant unintended consequences to mandating separate, individual arbitrations.  First, if an employer is sued in a class action or a case with multiple plaintiffs, it will likely be able to obtain a court ruling forcing the dispute into separate arbitrations for each employee, provided there are signed arbitration agreements requiring individual arbitrations.  However, obtaining that procedural “win” in court requires legal defense costs, but does not conclude the matter, it merely changes the forum.

Under most employment arbitration agreements, the employer will bear all, or nearly all of,  the arbitration filing fee.  If there are dozens or even hundreds of claimants, that cost alone can be significant.  Further, most employment arbitration agreements provide that the employer will pay all the arbitrator’s fees and expenses.   In this example, the employer must pay dozens or more arbitrators, rather than one, to obtain a ruling for each claim.

The claimants’ attorneys may use these duplicate costs as a strategic cudgel over the employer.  Instead of one filing fee and one arbitrator adjudicating the case, there may be dozens or more arbitrators handling each individual matter.  The arbitrators will be hearing the same evidence and evaluating the same factual and legal issues that one arbitrator would have considered in a class action or collective arbitration.  Further, depending on the nature of the dispute and the number of claimants, some of the arbitrators may need to travel out of state to attend hearings, again increasing the cost of the arbitration proceeding.

Prosecuting numerous, similar arbitrations also puts a burden on the attorneys for both sides.  For small plaintiffs’ law firms, the strain of handling a hundred separate arbitrations may exceed the firm’s resources.  This may require assigning a significant percentage of the cases to other plaintiffs’ law firms.  In order to handle all the repetitive pleadings, overlapping hearings, motions on procedural issues, and client contact, both the employees and employer may need to be represented either by multiple law firms (or a large law firm that divides the cases amongst numerous attorneys).  This creates an inefficiency by requiring multiple lawyers to conduct a review of the same documents, preparation for similar depositions and trial preparation.  If the employer loses a matter involving a statute that allows the successful claimant to recover attorneys’ fees, such as the FLSA or Title VII, the employer will be assessed the attorneys’ fees of multiple attorneys representing claimants.

Scheduling the arbitration hearings with multiple claimants involving parallel matters also raises procedural issues for attorneys from both sides.  Stacking the cases one after the other may result in a considerable delay for the individual claimants who are at the end of the line.   Holding separate hearings during the same time requires different attorneys from both sides handling the matters.  For example, if there are fifty parallel, separate arbitration hearings, Claimant Number 50 may have to wait a year or more to have a hearing held, particularly if multiple days of hearing are required.  On the other extreme, if Claimants 1, 2 and 3 will have their five days of hearing held during the week of May 1, both sides will need three sets of attorneys to try the cases.

Having separate, individual arbitrations may result in fundamental unfairness to some claimants or the employer.  Since arbitration decisions are not binding precedent, one arbitrator may grant a motion for summary disposition, particularly when the motion is based on legal arguments, while another arbitrator denies the motion.  Both parties should expect that they may receive different rulings on evidence objections, procedural or discovery issues, and rulings on the merits of the case.   Thus, Claimant 1 may win his case while Claimant 2, with parallel factual and legal issues, may lose hers.

There are some techniques to streamline separate, individual arbitrations and make them more efficient:

1. Hearings can be held concurrently, in the same location (or virtual setting) with multiple arbitrators watching.  In this instance, one arbitrator would be designated to rule on evidence objections.
2. Testimony by expert witnesses or some fact witnesses in the first case could be videotaped and played in subsequent cases.  This would avoid both sides having to pay expert witness fees for repetitive testimony and might avoid some travel costs for fact witnesses.
3. The parties could agree to litigate 5 or 6 test cases and hold the others in abeyance.  After obtaining rulings from those first set of cases, the parties might see a pattern that would enhance a global settlement.  Alternatively, the parties could attempt mediation to resolve some or all the remaining cases, after seeing how the first set of cases were resolved by the arbitrators.
4. The parties could agree whether the decisions of arbitrators on summary disposition motions, in the initial set of arbitrations, should be presented or not presented to arbitrators in subsequent matters.  Alternatively, the parties could agree that if a given number of arbitrators grant or deny a motion for summary disposition, their rulings are binding on arbitrators in subsequent matters.

Holding separate, individual arbitrations changes the procedural landscape of resolving disputes and significantly affects the cost of the arbitration process.  Defense attorneys should carefully weight the impact of having separate versus class action or collective arbitrations before drafting arbitration clauses.  Both claimants’ and defense attorneys should evaluate the procedural impacts of holding separate arbitrations early in their representation of their clients.

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[i] 138 S.Ct. 1612 (2018).
[ii] 9 U.S.C §1 et seq.