A Beginners Guide to Arbitration – Part 1

Chipotle is currently embroiled in a multi-year wage theft lawsuit. In 2014, approximately 10,000 current and former Chipotle employees filed a class action lawsuit alleging the company failed to compensate employees for work they performed “off the clock”.  The employees further claim these off the clock hours are required by Chipotle to meet company-wide labor and payroll budgets. Chipotle responded that 2,814 of the workers should be dismissed from the lawsuit because their employment contracts include a waiver or their right to join class action lawsuits and an agreement to resolve all disputes via arbitration.  The United States Supreme Court issued a ruling last month which lends support to Chipotle’s position.  On May 21, 2018, the Supreme Court approved employers’ rights to enforce arbitration clauses in employment contracts, even if the contracts prohibit employees from filing a class action lawsuit.[1]

Arbitration clauses are common in a variety of contracts regarding employment, home renovations, health insurance, business agreements, and even  services.  While most individuals have signed agreements containing forced arbitration clauses, the majority of non-lawyers are unfamiliar with the arbitration process.  As such, this blog post is one of a series of post aimed to demystify the arbitration process.

Arbitration is, simply put, a private system for dispute resolution. The arbitration process is less formal than litigation (i.e., a trial or court hearing), but more regimented than a mediation or negotiation.  During arbitration, the parties present evidence supporting their case to an individual (the “arbitrator”) or multiple individuals (“arbitrators,” “panel,” or “arbitral tribunal”) who ultimately determine the outcome.  Arbitration is typically held in a conference room at an agreed upon location, with all parties seated around a table.  Although considered informal, arbitration can involve complex legal issues and often last several days.

Some contracts require the parties resolve their dispute through a large arbitration agency such as the American Arbitration Association or the National Arbitration Forum.  These disputes are typically presented to a panel of arbitrators composed of certified practicing attorneys or retired judges.  Agencies may charge a set hourly rate depending on the skill and expertise of the arbitrators (a retired judge will likely be more expensive than a practicing attorney) or they may charge a percentage of the total amount in dispute.  Other contracts allow the parties to select a mutually acceptable individual arbitrator.  Individual arbitrators’ fees vary greatly depending on their skill and expertise, and are ordinarily determined by a set hourly rate.  Although often promoted as a cheaper alternative to litigation, arbitration expenses can quickly escalate when, in addition to paying their own attorneys, the parties must pay the arbitrator(s) for his or her time.

In recent years, arbitration clauses have become increasingly popular.  As disputes regarding these agreements arise, more individuals and entities may need to resolve their disputes through the arbitration process.  Accordingly, it’s important to understand the effects an arbitration clause has on your right to file a lawsuit and the costs and benefits of resolving a dispute through arbitration.  Although it may be cumbersome, it is worthwhile to have an attorney review any contract before you sign so the attorney can advise you regarding the terms of the contract and its potential effect on your right to pursue claims.

 

If you have questions regarding an arbitration agreement or other contractual issues, please give us a call at (704) 457-1010 to schedule a consultation.  For more information regarding our firm, attorneys, and practice areas, please visit http://www.lindleylawoffice.com/.

[1] Epic Systems Corporation v. Jacob Lewis, 584 U.S. ___ (2018).

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