Mandatory agreements to arbitrate all employment claims, including discrimination claims, often contain a provision requiring the parties to share “equally” the costs of the arbitration, including the arbitrator’s fee. These fees can be quite substantial. New York’s highest court, the Court of Appeals, decided on March 25, 2010 that an unreasonable fee sharing provision in a mandatory agreement to arbitrate statutory employment claims can render the agreement to arbitrate unenforceable. Brady v. The Williams Capital Group, L.P. In Brady the anticipated arbitrator’s fee was over $42,000, and the employee’s average compensation exceeded $300,000.
To be enforceable the fee sharing agreement must be examined on a case-by-case basis, the Court said, and the questions which must be answered by the reviewing court are: (1) whether the litigant can pay the arbitration fees and costs; (2) what is the expected cost differential between arbitration and litigation in court; and (3) whether the cost differential is so substantial as to deter the bringing of claims in the arbitral forum.
The Court said: “Although a full hearing is not required in all situations, there should be a written record of the findings pertaining to a litigant's financial ability. Finally, we do not see the need to detail the precise documentation a court should request to resolve this issue. Such matters are best left to the court's discretion.”
The Court’s decision was driven by “the strong State policy favoring arbitration agreements and the equally strong policy requiring the invalidation of such agreements when they contain terms that could preclude a litigant from vindicating his/her statutory rights in the arbitral forum.”
The good news is that the Court did not adopt a per se rule invalidating mandatory arbitration agreements requiring employees to share arbitration costs. The bad news is the Court did not decide what the remedy should be if the "equal share" provision is found unenforceable. If that happens, the Court said, the reviewing court should decide “whether to sever the clause and enforce the rest of the Arbitration Agreement, or to offer petitioner a choice between accepting the "equal share" provision or bringing a lawsuit in court.”
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© 2010 Damon Morey LLP, Randolph C. Oppenheimer, Esq.
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