Reconsidering Arbitration Agreements

As larger employers have been discovering lately, arbitration agreements can be more of a curse than a blessing.

In Abernathy v. Doordash, Inc., over 6,000 delivery drivers (couriers) – who had previously agreed to arbitrate any disputes – filed individual arbitration demands with the American Arbitration Association (AAA) alleging they had each been improperly classified as independent contractors rather than employees.

When Doordash received a $12 million invoice for AAA’s filing fees, it sought to pump the brakes  on the proceedings.  In granting the couriers’ motion to compel the arbitrations, the court scathingly concluded: “The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration.  Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate.  This hypocrisy will not be blessed, at least by this order.”

Arbitration has many business-related advantages, including a more efficient, time-saving process that does not involve a potentially more subjective jury process. Arbitration agreements can also include a class action “waiver” that would require the worker to resolve his or her specific employment complaint in an individualized arbitration proceeding.

In California, employers must pay for the lion’s share of the costs of arbitration upon receipt of the arbitration provider’s invoice. As the Abernathy ruling illustrates, arbitration can add up to even millions of dollars in up-front arbitration filing costs, thereby forcing the employer to settle regardless of the merits of the claims.

To make matters worse, an employer’s failure to pay these arbitration fees: ● gives each employee the options of proceeding in court or proceeding with the arbitration, with the employer to cover the employee’s attorney’s fees and costs caused by its non-payment; and ● in extreme cases gives the court the power to strip the employer of defending itself.

Take-Aways:
For larger employers, arbitration agreements removing an employee’s ability to bring or take part in a class action might not be the best choice for the huge fees they may generate. It’s best to consult with an employment attorney before abandoning or modifying workplace arbitration agreements to minimize the likelihood of – or costly effects of – a mass arbitration strategy as above.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• Their Day in Court – Sexual Harassment Accusers May Opt Out of Forced Arbitration (March 11, 2022)
• The Right to Fight – Battle Continues Over Employer-Required Arbitration Agreements (September 24, 2021)
• What’s New in 2020 – California Prohibits Mandatory Employee Arbitration Agreements (December 18, 2019)

Cindy Bamforth
April 6, 2022