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Arbitration provisions unenforceable if they deny the plaintiff a right to recover attorney fees and costs

The Eleventh Circuit recently issued a ruling holding that fees and costs clauses inherent in arbitration provisions are unenforceable. The defendant, PIP, in Hudson et al. v. P.I.P., Inc., et al., No. 19-11004 (11th Cir. 2019), appealed the district courts detail of its motion to compel arbitration in the case brought by the plaintiffs under the Fair Labor Standards Act (“FLSA”), contending the district court erred because (1) the arbitration provisions do not contain an “unenforceable remedial restriction” as to the recovery of fees and costs, and (2) even if the fees and costs clauses are unenforceable, those clauses are severable under Florida law even without a severability provision. The court affirmed in part and vacated and remanded in part.

On January 10, 2019, the plaintiffs filed a lawsuit alleging violations of the FLSA. The FLSA provides for reasonable attorney’s fees and costs of the action if the plaintiff is successful, stating, “[t]he court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.” 29 U.S.C. § 216(b). 

Two weeks later, the defendant filed a Renewed Motion to Stay Proceedings and Compel Arbitration and Incorporated Memorandum of Law, which asked the court to compel arbitration pursuant to the mandatory arbitration clause in the Employee Commission Agreements (“ECA”). The arbitration clause provided:

Any dispute arising out of this agreement shall be resolved by mediation or arbitration, each party agrees, the parties will equally divide cost of mediation. Each party to any arbitration will pay its own fees and expense, including attorney fees and will share other fees of arbitration. The arbitrat[or] may conduct the hearing in absence of either party.

A “party seeking to avoid arbitration . . . has the burden of establishing that enforcement of the agreement would ‘preclude’ him from ‘effectively vindicating his federal statutory right in the arbitral forum.’” Musnick v. King Motor Co. of Ft. Lauderdale, 325 F.3d 1255, 1259 (11th Cir. 2003). The plaintiffs argued that the ECAs improperly denied them their right to recover fees and costs under the FLSA. The defendant countered and said the arbitration provision did not preclude an arbitrator from awarding fees to the plaintiff. According the report and recommendation issued by the magistrate judge, the language of the arbitration provision prohibited the plaintiffs from recovering their fees and costs, thus they were unenforceable under the FLSA. The provision did not contain severability clauses so in the absence of that, the language could not be severed. Thus, the magistrate judge said the arbitration provisions were unenforceable. 

The defendants filed objections to the report and recommendation saying that the fees and costs clauses required the parties to pay their way during the arbitration proceedings, and thus, nothing in the ECAs prohibited the arbitrator from shifting the fee if and when the plaintiffs were determined to be the prevailing parties. The defendants claimed that Florida law allowed an unenforceable cause to be severed as long as the unenforceable clause did not go to the essence of the agreement. So, according to defendants, even if the court were to sever the offending clause, there would still be a valid agreement to resolve employment-related disputes through arbitration. 

The court had previously held that the terms of an arbitration clause regarding remedies must be “fully consistent with the purposes underlying any statutory claims subject to arbitration.” Paladino v. Avnet Comput. Techs., Inc., 134 F.3d 1054, 1059 (11th Cir. 1998). The court said the fees and costs clause defeated the purpose of the FLSA’s attorney’s fees and costs provisions. Having the mandatory fees and costs clause removes the arbitrator’s ability to award a plaintiff what he’s entitled to if successful. The court stated that the plaintiffs met their burden of establishing enforcement of fees and costs clauses in the arbitration provision so the district court did not err in concluding the fees and costs clauses were unenforceable. 

The Eleventh Circuit affirmed the district court’s conclusion that the fees and costs clauses of the arbitration provisions were unenforceable. The court reversed the district court’s conclusion that the arbitration provisions are unenforceable because they lack a severability provision. The court then remanded to the district court to determine whether the fees and costs clauses are severable under Florida Law. 

Arbitration provisions in employment contracts are almost always written to favor the employer.  This case shows that sometimes the employer can write the contract to be so unfavorable to the employee that the contract (or at least parts of it) can be unenforceable.  If you have questions regarding overtime pay and unsure of what to do next, speak with an attorney today. Josh Borsellino is a Texas attorney that understands the intricacies of arbitration clauses and the laws and regulations of the FLSA. He works on a contingency fee basis meaning that you owe him nothing unless there is a recovery. Call him today 817.908.9861 or 432.242.7118.