New York/New Jersey Wage and Hour Alert: Employers Who Fail to Pay Arbitration Fees Cannot Subsequently Compel Mandatory Arbitration

As many of you know, employers throughout the Nation increasingly require employees to sign agreements waiving their right to pursue legal claims in court, their right to a jury trial, and their right to pursue legal claims on a class/collective basis. However, in recent months, it has become increasingly clear that many employers do not actually want employees to pursue the expensive arbitration process. Indeed, when employees call the employers’ bluff and actually pursue arbitration, many employers respond by simply refusing to pay the arbitration fees.  This results in the American Arbitration Association (“AAA”) dismissing the case. In other words, the employer can essentially pick and choose the cases it wants to arbitrate. If the employer does not want to arbitrate a particular claim, it can escape arbitration by refusing to pay the fee. Then, the employee must go to court to either pursue her claims in the judicial forum or compel the employer to pay the arbitration fees.  So much for arbitration being “fast, inexpensive, and efficient.”  What a joke.

Anyway, it was nice to read Southern District of New York Judge Vincent L. Briccetti‘s decision addressing this tactic in an opinion entitled Nadeau v. Equity Residential Properties Management Corp., 7:16-cv-07986-VB (S.D.N.Y. May 5, 2017). There, Ms. Nadeau commenced an AAA arbitration alleging that the company required her and other employees to work “off the clock” in violation of the FLSA and the New York Labor Law. Seeking to avoid the arbitration, the company refused to pay the arbitration fee, and, as usual, the AAA dismissed the arbitration.  But Ms. Nadeau refused to give up. She pursued her claims in federal court. At this point, the company changed its tune and asked Judge Briccetti to compel Ms. Nadeau’s claims to arbitration. The Judge refused, holding that the company’s “refusal to arbitrate constitutes a material breach of the Arbitration Agreement, and therefore defendant cannot compel arbitration.”

Judge Briccetti’s holding is not an outlier. A few months earlier, the New Jersey Supreme Court issued a similar holding in Roach v. BM Motoring, LLC, 228 N.J. 163,155 A.3d 985 (N.J. 2017).

I have a feeling we are going to see more opinions along the lines of Nadeau and Roach as federal and state judges continue to be exposed to the actual workings of mandatory employment arbitration.  -PW

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