Question

Select one of the following cases or find one on your own and provide a summary of the situation that caused the lawsuit related to arbitration to end up in court. How did the court rule and why? Do you agree?

• Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202, 205 (5th Cir. 2012).
• Circuit City Stores, Inc.5 v. Adams 532 U.S. 105 (2001)
• Cruise v. Kroger Co., 233 Cal.App 4^th 390, 183 Cal. Rptr. 3d 17 (2015).
• Delfingen US–Texas, L.P. v. Valenzuela, 407 S.W.3d 791, 800 (Tex.App.-El Paso
  2013, no pet.).
• Mohamed v. Uber Technologies, Inc. 2015 WL 3749716 (N.D. Cal. 2015).
• Nitro-Lift Technologies, L.L.C. v. Howard, 133 S.Ct. 500 (2012).

  

Answer 1

Ques: Select one of the following cases or find one on your own and provide a summary of the situation that caused the lawsuit related to arbitration to end up in court. How did the court rule and why? Do you agree?

Ans: Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202, 205 (5th Cir. 2012).

Case Summary:

The plaintiff, one Mr. John Carrey, was a former employee of the defendant-employer (24 Hour Fitness, USA, Inc.). During the course of Mr. Carey's employment with the defendant, the defendant had issued an employee handbook to the plaintiff in January, 2005 for which the defendant obtained an acknowledgement as proof of receipt by the plaintiff. In this employee handbook, there was a section called 'Arbitration of Disputes', which had a specific clause/condition that any employee disputes with the defendant must mandatorily be resolved only through arbitration which would be final and binding including any disputes arising out of the Fair Labour Standards Act (FLSA), and cannot be brought against the defendant as class action suits or through union representation. The defendant in its employee handbook cited the Federal Arbitration Act (FAA) as its governing authority.

After his employment with the defendant ended, the plaintiff (Mr. John Carrey) filed a class action against his former employer and defendant (24 Hours Fitness, USA, Inc.) in the district court on the ground that the defendant had violated the FLSA by not compensating him and other employees at his level/grade for overtime work.

The district court had agreed with the plaintiff (Mr. John Carrey) and held that the arbitration agreement was illusory.

The defendant-appellant rushed to file a motion of stay (on the case) against the district court's order and compel the plaintiff-appelle to arbitrate on his claim before the Fifth Circuit Court of Appeals.

In reply to the defendant-appellant's motion, the plaintiff-appelle argued that the arbitration agreement was illusory (imaginary/unreal) because the defendant-appellant had retained the right to unilaterally amend the agreement.

How did the court rule and why?

The Fifth Circuit Court of Appeals found in favour of the plaintiff-appelle (Mr. John Carey) and ruled that the arbitration agreement stated and referred to in the defendant-appellant's (24 Hour Fitness, USA, Inc.) employee handbook was illusory. Therefore, the plaintiff-appelle (Mr. John Carey) was not bound by that provision/clause and that the defendant-appellant could not compel arbitration on the plaintiff-appelle to resolve the dispute. The Court of Appeals thereby affirmed the judgment of the district court.

Do you agree?

Yes, it is a matter of principles of natural justice and common law, that an employer cannot compel employees to arbitrate and can instead try to persuade. The employer in the matter (24 Hour Fitness, USA, Inc.) even wanted to be able to unilaterally amend its employee handbook with retrospective effect, which would be seen as an arbitrary act against employees. An employment contract must be fair to the employee as well. An employer cannot take arbitrary action against an employee knowing fully well that it sits in a position of power and authority over that employee. Facts of law relied upon by the Court of Appeals in its order:

- The Fifth Circuit Court of Appeals while relying on several other caselaws and precedents had cited Texas law (since both disputing parties had agreed to be subject to the Texas laws so Texas laws would apply in this case) under which an arbitration clause is illusory if one party can "avoid its promise to arbitrate by amending the provision or terminating it altogether."

- Further, the Federal Arbitration Act (FAA) to which the defendant-appellant had invoked in its own employee handbook reflects a `liberal federal policy favoring arbitration', therefore the defendant must abide by its own company policy and in such a case arbitration cannot be made mandatory for employees.

While arbitration is a good thing, it can be one-sided, biased and unfair if the company appoints the arbitrator and does not allow the employee legal representation during the arbitration proceedings and yet state that the arbitration outcome is final and binding. Arbitration must be done in accordance with the contemplated rules and procedures thus the plaintiff-appelle did not want to take a risk with the company's arbitration, also it should be mutually agreed to arbitrate and cannot be thrust or coerced onto one party.