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An Expensive Lesson on Arbitration Agreements and Forum Shopping

By William Vogeler, Esq. on August 14, 2018 | Last updated on March 21, 2019

Julio Hernandez and two co-workers filed wage claims against their employer, but the company said they had to go through arbitration.

The arbitration fees exceeded the demand, however, so the employer went back and asked a federal court to reopen the cases. That didn't go so well for the company either.

In Hernandez v. Acosta, an appeals court said it "certainly looks like forum shopping." That slap back came after the company had incurred $100,000 in arbitration fees and costs.

Cost of Arbitration

General counsel really should tell employers to think twice before putting arbitration clauses in their employment agreements. Acosta Tractors learned that lesson the hard way.

The contractor compelled Hernandez and his co-workers to pursue their claims with the American Arbitration Association. The company wanted to consolidate the AAA cases, but the arbitrator refused.

When the company went back to court, the trial judge entered judgment against the contractor for defaulting in arbitration. On appeal, the U.S. Eleventh Circuit Court of Appeals gave company more bad news.

"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."

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