When arbitration clauses backfire

By Roxana Jitariu

It is interesting to observe how sometimes ADR can bring unexpected results. In fact, it is curious to see how in fast food chains, arbitration often completely favour one party over another. For example, in New York, restaurants had to increase the employees’ wage thanks to the use of Alternative Dispute Resolution.[1] In 2013, employees in New York City demanded an increase in wages and unionization.[2] In order to achieve that result, a lot of people have gone on strikes and/or quit the job.[3] Later, individual employees joined labour unions, who are skilled in negotiation and ADR in general.[4] Precisely, bringing a case as a union has a higher chance of success than applying for a case as a single person.[5] As a result, in 2015 it was reported that the employees’ wage had increased after the legal action.[6]

Unfortunately, it would be utopic to state that ADR only solves this kind of problems. In fact, sometimes, arbitration clauses can backfire and bring disadvantage to one of the parties. An example is the US Supreme Court case law of Epic Systems Corp. v Lewis.[7] In this case, the dispute revolved around an arbitration clause involving the employer and employee.[8] The employee wanted to bring a case as part of a labour union to dispute the norms of the Fair Labour Standard Act, however the arbitration clause prohibited class actions and only allowed the employee to bring a case as an individual person.[9] Here, the arbitration clause backfired as the employee cannot be permitted to bring a claim as part of a labour union. Therefore, this case was brought into litigation in order to establish whether the arbitration agreement is enforceable on the employee.[10] An argument was made by the employee stating that the National Labor Relations Act is violated should this arbitration clause be considered legitimate.[11] However, the employer argued that the Arbitration Act protects arbitration clauses and that the case should have been settled through arbitration first.[12] On the first page of the case explanation, it is stated that decisions generally since 2012, have mostly favoured the National Labor Relations Act over the Arbitration Act.[13] Nevertheless, the outcome of this case was that the court favoured the Arbitration Act over the National Labor Relations Act, therefore making the arbitration clause enforceable on the employee.[14]

A reference to this case was made when discussing a similar debate involving Chipotle Mexican Grill Inc.[15] Initially, Chipotle employees brought a class action against the fast food chain in order to gain an increase in wage.[16] However, while this case was pending, the Epic Systems Corp. v Lewis case decision was issued, favouring arbitration clauses which prohibited actions as labour unions.[17] Considering the outcome of the US Supreme Court case as precedent, the Chipotle employees’ union claim was dismissed and it was decided that each employee had to bring an individual action in arbitration.[18] After that, Chipotle tried to dismiss the employees’ counsel, as class counsel should have not sent notices to the employees.[19] However, the Court denied Chipotle’s claim, and allowed the arbitration procedure to continue.[20]

The conclusion which can be formed from this blog post is that arbitration clauses do not always bring favourable situations. To explain better, some arbitration clauses can be worded in a manner that places one of the parties in a disadvantage, should a dispute arise. Consequently, the clauses not serve the purpose for which they were drafted in an efficient manner.  For this reason, it is of utter importance to read and understand the phrasing of the terms of the clause before agreeing to them.

[1] Pon Staff, “How Fast-Food Workers Used Alternative Dispute Resolution (ADR) to Demand Higher Wages: New York fast food restaurants to pay higher wages due to alternative dispute resolution” (2020) Program Negotiation: Harvard Law School Daily Blog < https://www.pon.harvard.edu/daily/dispute-resolution/in-new-york-fast-food-workers-test-their-negotiation-skills/ > accessed on 26 July 2021

[2] Ibid

[3] Ibid

[4] Ibid

[5] Ibid

[6] Ibid

[7] Epic Systems Corp. v Lewis, 584 U.S. No. 16-285 joined No. 16-300 (2018)

[8] Epic Systems Corp. v Lewis, 584 U.S. No. 16-285 joined No. 16-300 (2018) 1

[9] Ibid

[10] Ibid

[11] Ibid

[12] Ibid

[13] Ibid

[14] Epic Systems Corp. v Lewis, 584 U.S. No. 16-285 joined No. 16-300 (2018) 25

[15] Gina M. Roccanova, “Fast-Food chain Chipotle Mexican Grill, Inc. has found itself at the center of the ongoing debate over the mandatory arbitration provisions in employment agreements That debate has always assumed that arbitration clauses favor employers. However, the most recent developments in a wage-and-hour case against Chipotle have called that assumption into question.” (2019) Villegas Carrera Inc. < http://www.e-licenciados.com/fast-food-chain-chipotle-mexican-grill-inc-has-found-itself-at-the-center-of-the-ongoing-debate-over-mandatory-arbitration-provisions-in-employment-agreements-that-debate-has-always-assumed-that-ar/ > accessed on 26 July 2021

[16] Ibid

[17] Ibid

[18] Ibid

[19] Ibid

[20] Ibid