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$100,000 Lesson on Employee Arbitration Agreements

By William Vogeler, Esq. | Last updated on

Be careful what you ask for.

That should be the mantra for lawyers who advise businesses about arbitration clauses in employment agreements. It's cheap advice, given the real cost of arbitration.

In Hernandez v. Acosta, it turned out to be a $100,000 lesson. That's how much the employer owed in arbitration fees, which far exceeded the company's liability to one worker.

Triple A, Triple Costs

Julio Hernandez filed a federal wage case against Acosta Tractors, a Florida contractor. But the business had arbitration pending with two others workers, and compelled them all to file claims through the American Arbitration Association.

The defendant wanted to consolidate the AAA cases, but the arbitrator refused. The separate cases cost more than $100,000 in arbitration fees and discovery costs. That did not include attorneys' fees.

So the company ditched the arbitrations and asked the federal court to reopen the cases there. In the Hernandez case, the trial judge entered judgment against the contractor for defaulting in arbitration. The Eleventh Circuit gave company more bad news on appeal.

"The idea is that employers prefer arbitration because it promises 'quicker, more informal, and often cheaper resolutions for everyone involved,'" the Eleventh Circuit said, quoting Epic Systems v. Lewis. "But as this case shows, arbitration does not always live up to this promise."

'Forum Shopping'

The appeals panel vacated the trial decision -- a wage award for $7,293, not including a claim for attorney's fees. But the judges sent the case back with a warning.

"A calculated choice to abandon arbitration after getting adverse rulings from the arbitrator certainly looks like forum shopping," they said. "And this type of behavior would surely be a factor the district court could consider in deciding whether to sanction Acosta by entering a default judgment."

Not only that, the defendant still owes arbitration fees.

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