It may surprise some people to hear it, but not every employment related lawsuit is heard in a court of law, before a judge and a jury. Sometimes companies and workers, often as a condition of being hired, enter an arbitration agreement. Under the Federal Arbitration Act, these agreements require workers to resolve any disputes through employment arbitration rather than in a traditional courthouse. Arbitration agreements are often recommended by employment defense lawyers, and employers sometimes (wrongfully) assume they are a kind of get-out-of-jail free card. In reality, as a recent case shows, employment arbitration can end up costing a company far more than traditional litigation – in this case, a total award of over $220,000 arising out of an original debt of only $9,000, in addition to defense attorney fees and arbitration costs.
Julia Predmore worked for a Dallas-area nightclub for a company called Nick’s Clubs. Predmore alleged that the company owed her overtime and had made illegal deductions or kickbacks from her wages. She filed suit in federal court in 2020. The company responded by pointing to its arbitration agreement, in which Predmore had agreed to submit any disputes against the company to a private arbitrator. In early 2021, the court granted the company’s motion [pdf link] and stayed the court case, pending the result of that arbitration. Importantly, however, this did not effect Predmore’s legal rights. It only affected who heard her case — here, an arbitrator instead of a judge and a jury.
The defendant probably felt, at first, that it had “won.” The court case was over, and Predmore’s case would not be heard in front of a jury. Instead, she would proceed before a privately hired arbitrator who would sit in lieu of a judge. However, the outcome was not quite so rosy as the company might have hoped. First, as the court noted, the American Arbitration Association employment arbitration rules limit an employee’s share of arbitration costs to $300. All other costs were on the employer’s tab. Arbitrators – unlike judges and jurors – must be paid by the parties for their time, as well as travel or other expenses. Arbitrators are experienced lawyers or retired judges, and their hourly rates are often quite high. Those costs would be borne almost exclusively by the company
The arbitration did not go well for Nick’s Clubs. After hearing the evidence and testimony, the arbitrator awarded Predmore $9,017.99 in unpaid wages and overtime, $9,017.99 in FLSA liquidated damages, and over $200,000 in attorneys’ fees and costs. In all, the company was ordered to pay $228,629 on an underlying debt of about $9,000 — and that doesn’t even count the arbitrator’s fees, or the costs of hiring their own lawyers to defend the case. While those numbers are not disclosed in the court’s opinion, it is quite likely that the company’s total expense in litigating this case exceeded half a million dollars.
The company challenged the arbitration award in court, and argued that the arbitrator was biased or had exceeded her authority. The judge, however, issued an order confirming the award [pdf link] and held the company to the result of the arbitration that it had demanded. Notably, an arbitration award cannot be “appealed” in the same sense as a court opinion, on the grounds that there was a legal or factual error. The arbitrator’s decision is almost always final, except in extremely limited circumstances of obvious bias. That was not the case here, so the court upheld the award in full.
This decision is a reminder of two important facts. First, arbitration agreements may change who hears the case, but they do not prevent a plaintiff from asserting his or her legal rights and obtaining justice. Second, an underpayment of a relatively modest amount of money — here $9,017 — can often end up costing a company hundreds of thousands of dollars in penalties, attorneys’ fees, and arbitration costs.
If you, like Ms. Predmore, have been shorted wages or overtime pay, click here to contact New Orleans overtime lawyer Charles Stiegler today, or call (504) 267-0777. The consultation is free. This is your money, you have worked for it, and you have earned it. We may be able to help you get it back.