chevron-down Created with Sketch Beta.

Litigation News

Having Your Arbitration Clause and Waiving It, Too

Kelso Lorne St. Jacques Anderson

Summary

  • Class action waiver in arbitration agreement still results in millions in fees.
  • Employers in service industries might reconsider class action waivers in arbitration agreements, or consider tailoring such agreements with employees or independent contractors to avoid paying costly arbitration fees.
Having Your Arbitration Clause and Waiving It, Too
Halfpoint Images via Getty Images

Jump to:

Employers in service industries might reconsider class action waivers in arbitration agreements, or consider tailoring such agreements with employees or independent contractors to avoid paying costly arbitration fees, in light of the federal court decision in Abernathy et al. v. DoorDash. While employers have generally had success in limiting legal options for consumers and employees, according to ABA Section of Litigation leaders, the plaintiffs in arbitration may have found another way to make dispute resolution of class claims an expensive proposition for employers.

Contractual Terms Matter

In Abernathy, the plaintiffs were 5,879 employees or independent contractors who worked as couriers for the defendant, DoorDash, Inc., a food delivery services company. To make deliveries for the defendant, the plaintiffs had to click through an online agreement that contained a “Mutual Arbitration Provision,” which applied to “all disputes arising out of or relating to this Agreement, [including] a contractor’s classification as an independent contractor.” The parties who executed the agreement further agreed that “by entering into this agreement to arbitrate, both waive their right to have any dispute or claim brought … or participate in … a class action[,] collective action and/or representative action.”

The agreement also provided that any party bound by its provisions would arbitrate disputes according to the terms of the Federal Arbitration Act (FAA), as administered by the American Arbitration Association (AAA). The AAA’s commercial arbitration rules required that each individual plaintiff pay a filing fee of $300, and the responding company pay $1,900 per arbitration. The AAA imposed a deadline on the defendant to pay its portion of the filing fees based on the arbitration demands by the plaintiffs. However, the defendant argued that the plaintiffs’ filings were deficient, and it was therefore not obligated to tender the $12 million in administrative fees resulting from the individual plaintiffs’ arbitration demands.

Application of Arbitration Law

The plaintiffs filed a motion in the district court to compel arbitration of claims that they were improperly classified as independent contractors instead of employees, in violation of state and federal labor laws. The district court began its analysis by citing the FAA provisions that required the court to determine whether a valid arbitration exists and, if so, “the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.”

The court concluded that of the 5,879 plaintiffs who demanded arbitration, only 5,010 had valid claims because 869 of the plaintiffs did not submit declarations as required to support their position that they were hired by the defendant. Those plaintiffs merely submitted unsworn witness statements. Counsel for the defendant also raised the issue of whether the plaintiffs’ counsel had requisite authority to represent each plaintiff in arbitration, but the court determined that resolution of that issue would be left to the AAA. The court concluded, however, that if the plaintiffs’ counsel overstated her authority, or if the plaintiffs had not perfected their right to arbitrate, then counsel would have to fully reimburse the defendant for all arbitration costs and attorney fees.

Parties’ Intent Enforced

The court noted that “the employer-side and their employer clients have forced arbitration clauses upon workers, thus taking away their right to go to court, and forced class-action waiver upon them too, thus taking away their ability to join collectively to vindicate common rights.” That employers have successfully enforced class action waivers in arbitration agreements is settled law, thereby making the court’s grant of the plaintiffs’ motion to compel arbitration unsurprising.

“I do not regard the plaintiffs’ actions as an end run around the class action waiver,” says Mitchell L. Marinello, Chicago, IL, cochair of the Section of Litigation’s Alternative Dispute Resolution Committee. “DoorDash created an agreement that required its employees to arbitrate all disputes and that prohibited class actions. It initially tried to enforce its agreement, and then, when a large number of employees filed arbitrations, it tried to back off its own agreement. The plaintiffs were merely taking advantage of what was available to them—and enforcing DoorDash’s agreement as written.”

The court’s order was not only consistent with the plain language of the arbitration agreement but also with U.S. Supreme Court precedent, and it may prod a change in arbitration clauses in the future. “The Supreme Court’s 2018 decision in Epic Systems v. Lewis opened the floodgates to class action waivers in arbitration agreements. But in this case, that broad license ran head-first into DoorDash’s decision to incorporate the AAA’s rules into its arbitration agreements,” opines Henry R. Chalmers, Atlanta, GA, cochair of the Section’s Alternative Dispute Resolution Committee.

“Rule 43 of the AAA’s Employment Arbitration Rules provides that ‘AAA fees shall be paid in accordance with the Costs of Arbitration,’ and that fee schedule requires employers to pay all but $300 of the standard $2,200 filing fee, even if it is the employee who initiates the proceeding,” Chalmers observes. Because of the AAA’s fee-shifting rules, Chalmers speculates that Abernathy “may prompt employers to incorporate other administrative bodies’ rules into their arbitration agreements.”

Class Action Arbitration Ahead?

Given the substantial administrative fees that DoorDash may incur once arbitration is resolved, Section leaders see changes to arbitration clauses in the future. One potential resolution to the en masse arbitration sought in Abernathy is “a type of reverse ‘blow-up’ provision, akin to what you see in some class action settlements. That is, if there are a certain number of opt-outs, the settlement can be made null and void,” opines Theodore W. Seitz, Lansing, MI, cochair of the Newsletter Subcommittee of the Section’s Consumer Litigation Committee. “The response to these cases will not be to jettison arbitration agreements but to revise them to make it less likely that the plaintiffs’ bar can use individual fees to encourage aggregate settlements,” predicts Michael P. Daly, Philadelphia, PA, cochair of the Class Action Subcommittee of the Section’s Consumer Litigation Committee.

Since cost-efficient dispute resolution is the goal of arbitration and class action waiver provisions, consumer attorneys are sanguine about the prospect of class action mechanisms coming back into play. “As a plaintiff’s lawyer, I would use this case as a basis to get a defendant to waive its own arbitration provision and agree to a class action rather than individual arbitrations,” ventures Andre F. Regard, Lexington, KY, cochair of the Class Action Subcommittee of the Section’s Consumer Litigation Committee. “Alternatively, I hope that those drafting these agreements will consider class action arbitration, if the actual intended purpose of selecting arbitration is to streamline dispute resolution and to try to get the dispute in front of a neutral with some knowledge of the industry. In addition, a class action would eliminate inconsistent outcomes,” Regard concludes.

Resources

    Authors