Cost-Splitting Dooms Arbitration Agreements – Employer-required arbitration agreements

Cost-Splitting Dooms Arbitration Agreements – Employer-required arbitration agreements – Brief Article

D. Diane Hatch

Globe Airport Security Services required Damiana Perez to sign a mandatory arbitration agreement as a condition of employment as a security agent at Miami International Airport. That agreement called for arbitration of any dispute arising during employment, and specified that “all costs…and all fees imposed by any arbitrator hearing the dispute, will be shared equally between [Perez] and the Company.”

Following her separation from employment, Perez filed suit in federal court under Title VII of the 1964 Civil Rights Act alleging gender discrimination. Globe asked the court to order arbitration of the dispute. Perez claimed that the arbitration agreement was unenforceable because of the cost- and fee-splitting clause. The federal district court refused to order arbitration.

On appeal, the 11th U.S. Circuit Court of Appeals agreed. “By denying access to a remedy Congress made available to ensure violations of the statute are effectively remedied and deterred, the Agreement eroded the ability of arbitration to serve those purposes as effectively as litigation.” Moreover, the court said it would not enforce the agreement because the arbitration clause failed to contain a severability provision. Perez v. Globe Airport Security Servs., Inc., 11th Cir., No. 00-13489 (6/12/01).

Impact: Employer-required arbitration agreements concerning employment disputes may not deprive an employee of rights provided by law. However, language that allows an objectionable provision to be severed may preserve the rest of an arbitration agreement.

D. Diane Hatch, Ph.D., is a human resources consultant based in San Francisco. James E. Hall is an attorney with the law firm of Barlow, Kobata and Denis, with offices in Los Angeles and Chicago.

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