Employers: Be Careful What You Wish For - Your Motion to Compel Arbitration Can Lead to Expensive, Class-Wide Arbitration

In the wake of ATT Mobility v. Concepcion and Stolt-Nielsen v. AnimalFeeds,* many employers have sought to enact new arbitration agreements or to enforce arbitration provisions in older agreements to eliminate their employees' ability to come together when seeking to vindicate their rights to enforce statutory protections for workers. Employers should be careful what they wish for, in seeking to compel arbitration. They may indeed wind up in arbitration - but unable to strike class allegations, and required to pay the full and exhorbitant costs of class-wide arbitration.

In a case on which Bryan Schwartz Law serves as local counsel for Richard J. Burch of Bruckner Burch, in Houston, Texas, the employer is now feeling the danger of a Stolt-Nielsen-based strategy seeking to compel individual arbitration in a putative, wage-hour class action. In the Laughlin v. VMWare case, in which VMWare employees assert they were misclassified as exempt employees and denied overtime and other compensation to which they were entitled, the company moved to compel arbitration based on an agreement which did not specifically provide for class-wide arbitration.

Judge Edward Davila of the Northern District of California struck some of the more offensive provisions of the arbitration agreement under Armendariz v. Foundation Health Psychcare Services (2000) 24 Cal.4th 83, such as a provision which would have required Plaintiff to share the costs of arbitration. However, Judge Davila found these unlawful provisions severable (i.e., refused to kill the whole arbitration agreement). Perhaps most importantly, though, Judge Davila referred to the arbitrator the decision on the Stolt-Nielsen argument - namely, as argued by VMWare, the notion that class-wide arbitration cannot proceed where the parties' arbitration agreement did not expressly consent to class arbitration. His initial decision from early 2012 is available here:

In arbitration, AAA arbitrator LaMothe then rejected the employer’s Stolt-Nielsen motion to strike class allegations, notwithstanding the fact that the agreement did not expressly give permission to bring class allegations, finding the parties' agreement intended to encompass all claims by Plaintiff Laughlin, including her class claims. The AAA order is available here:

In the last 18 months, numerous other arbitrators from JAMS, AAA, and other nationwide arbitration services have likewise denied motions to strike class allegations, employing similar reasoning.

On review, Judge Davila confirmed the arbitrator's partial final clause construction award allowing class allegations to proceed, meaning - in light of all the foregoing - that VMWare will now be forced to arbitrate a putative class action, and will be forced to bear all of the costs of doing so, shown here.

Be careful what you wish for, employers. You may find that sometimes, allowing employees their day in court is better than the alternative.

If you are an employee and have questions about an arbitration agreement you signed, which might affect your right to proceed with class action claims, or other rights, contact Bryan Schwartz Law today.

DISCLAIMER: Nothing in this article is intended to form an attorney-client relationship with the reader. You must have a signed representation agreement with the firm to be a client.

*See our numerous prior blog posts relating to the subject of arbitration class waivers in light of Concepcion and Stolt-Nielsen, including:

http://bryanschwartzlaw.blogspot.com/2012/09/california-supreme-court-grants-review.html

http://bryanschwartzlaw.blogspot.com/2012/09/wage-and-hour-class-actions-sky-is.html

http://bryanschwartzlaw.blogspot.com/2012/01/landmark-decision-by-national-labor.html

http://bryanschwartzlaw.blogspot.com/2011/05/civil-rights-lawyer-and-employee.html