On The Case

Employer’s attempt to derail lawyers overseeing mass of individual arbitration fails … this time

(Reuters) - For employees and their lawyers, the battle over mandatory arbitration clauses is pretty much lost. Thanks to the U.S. Supreme Court’s pro-arbitration rulings, including last June’s Epic Systems v. Lewis, employers have nearly unfettered power to force workers into individual arbitration of their employment disputes.

Whether that’s an unalloyed boon to employers remains to be seen. Last week I told you about a Florida paving contractor that was socked with $100,000 in arbitration fees in proceedings by three employees who first tried to sue in federal district court. Individual arbitration turned out to be so expensive that the company refused to pay the arbitrator’s fees and retreated to federal court. Arbitration is supposed to be quicker and cheaper than litigation, but, as the 11th U.S. Circuit Court of Appeals observed in the paving company’s case, “Arbitration does not always live up to this promise.”

For employees and their lawyers, volume is as important in arbitration as it has always been in litigation. The Epic decision, as you know, held that employers can prohibit employees from arbitrating their claims as a group. So the only way workers who have signed arbitration agreements can pressure employers is by filing lots of individual suits, forcing companies like that Florida paving outfit to pay individual arbitration fees and costs in all of their cases.

Who’s best positioned to file multiple arbitration claims against a single employer? You know the answer: A plaintiffs’ firm that represents lots of employees of the company. It’s no accident that a single plaintiffs’ firm represents all three of the paving workers in that 11th Circuit case. The economics of scale is a simple theory.

So perhaps the best way for an employer to ward off an irksome, expensive onslaught of individual arbitration proceedings is to block plaintiffs’ lawyers positioned to bring the cases.

That’s what Chipotle tried to do in a nationwide wage-and-hour case in Colorado. U.S. District Judge John Kane of Denver ruled that about 2,800 Chipotle employees who signed arbitration agreements may not participate in the collective Fair Labor Standards Act action in federal court. (More than 7,000 employees who were not required to sign mandatory arbitration agreements remain in the federal court opt-in case.) The judge said the workers’ arbitration agreements are enforceable, even if employees don’t specifically recall signing them, and are not substantively unfair because employees can pursue their statutory rights in individual arbitration.

Chipotle wanted more than that, though. In its motion to dismiss the claims of employees who signed arbitration agreements, the company asked Judge Kane to bar their lawyers from representing those workers in any forum. Chipotle’s lawyers at Messner Reeves argued that the plaintiffs’ lawyers had compromised their clients’ interests by urging them to join the court case, thereby potentially waiving their right to arbitrate. “Plaintiffs’ counsel should not have been permitted to invite thousands of persons to disregard Chipotle’s contractual rights and their own contractual obligations, only to then jeopardize those individuals’ right to actually recover,” the company argued.

Nor should those lawyers, Chipotle said, benefit from their gamesmanship once the employees’ arbitration clauses are upheld. “The possibility of thousands of individual follow-along arbitrations is real,” the company said. “Allowing plaintiffs’ counsel to threaten Chipotle with those thousands of individual arbitrations in the hopes of gaining a tactical advantage in this litigation and independent leverage outside of this litigation is untenable and should not be permitted.”

Chipotle renewed the argument in a supplemental brief after the Supreme Court’s Epic ruling in June. Plaintiffs’ lawyers – from Bachus & Schanker, the Williams Law Firm, the Law Office of Adam S. Levy, Hinkle Shanor, Giebel and Associates and Kirby McInerney – called Chipotle’s disqualification request “unfounded and vexatious.”

Judge Kane refused to bar the lawyers from bringing arbitration on behalf of Chipotle workers dismissed from the collective litigation. “Absent more concrete evidence of legal incompetence or evidence demonstrating a clear pattern of abuse of the judicial process, I will not interfere with the arbitration plaintiffs’ right to choice of counsel,” he wrote. “If one or more of the dismissed arbitration plaintiffs wish to pursue their claims individually in arbitration, they are entitled to do so with representation by the legal counsel of their choice.” The judge did note plaintiffs’ lawyers hadn’t exactly done a bang-up job of arguing why their clients’ arbitration provisions were unenforceable but said it’s up to clients to decide whether to retain the same lawyers to bring arbitration claims.

If Chipotle’s motive was to avert a wave of individual arbitration cases, it has failed: According to plaintiffs’ lawyer Kent Williams of the Williams Law Firm, about 50 clients dismissed from the nationwide litigation have filed for individual arbitration. At the moment, he said, plaintiffs’ lawyers are paying arbitration fees but plan to demand reimbursement from Chipotle, whose arbitration clause says that employees are not required to pay more to arbitrate claims than they would have to spend in arbitration. (No one is exactly clear what that means.)

“It’s begun,” Williams said. “It’s going to be horribly inefficient and very expensive.”

But that’s what you get from mandating individual arbitration with employees who follow through.

I emailed Chipotle’s lawyers but didn’t hear back.