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By: Anna Drake
A recent lawsuit filed in Pennsylvania state court involves the important topic of dispute resolution and how it can play out in an employment setting. It can be specifically important in terms of employment agreements that include mandatory dispute resolution provisions, impacting them both positively and negatively.
The Pennsylvania matter involves ex-employees of MickeyTravels LLC (“MickeyTravels”), a travel agency authorized by The Walt Disney Company. Similar to many other companies, the former travel agents entered independent contractor agreements (“ICAs”) at the inception of their employment. Included in these ICAs was a mandatory arbitration provision, signifying the preferred method of dispute resolution, providing an alternative forum to the more formal judicial oversight involved in a trial.
Well, why would an employer ever want to opt out of arbitration and seek formal proceedings? The former travel agents wondered the same thing when MickeyTravels brought suit against them in 2019, prompting them to file their own lawsuit in Pennsylvania. The ex-employees allege MickeyTravels blatantly ignored the arbitration clause and excluded any mention of it in their complaint. Evidenced by their complaint, MickeyTravels replaced the arbitration clause with an ellipsis, hoping to sweep it under the rug and proceed with formal litigation. It will be interesting to see what the court has to say as the case develops.
The decision will likely depend on both state and federal law. Under the Federal Arbitration Act (“FAA”) most parties will be forced to arbitrate, however, in 2018 the United States Supreme Court ruled on a very important exception. In New Prime Inc. v. Oliveira, the Court found that parties that fall into the Section 1 exception of the FAA cannot be forced into arbitration. New Prime Inc. v. Oliveira, 139 S. Ct. 532. The FAA states “. . . but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 USCS § 1. Unlike the truckdriver in New Prime, where it was obvious the driver engaged in interstate commerce by routinely driving across state lines as part of the job, the former travel agents likely will not fall under the exception. Even so, MickeyTravels could attempt to use state law contract defenses such as unconscionability, fraud, lack of consideration, etc. in arguing the arbitration provision is not enforceable. However, the fact that MickeyTravels sued the former travel agents over alleged violations of the very agreement containing the mandatory arbitration clause, things may get tricky.
Why all the fuss about arbitration? Well, it can prevent parties from asserting their claims in court and can even expedite the dispute resolution process. Depending on one’s position, arbitration can be a good or bad thing. Some pros include the possibility of lower costs by way of decreased attorney’s fees, a flexible scheduling process, and the avoidance of strict evidence rules. Employers may see the confidential nature of the process as advantageous, keeping their dirty laundry out of the public eye. A possible downside could be seen through a typical David and Goliath situation where an employee has less bargaining power and financial resources compared to a large corporation. Additionally, an employer may pre-select the arbitrator from a list of agencies they’ve used the past, preventing the employee from having any say in the process.
Here are some things you should keep in mind when it comes to entering employment contracts and opting for a certain method of dispute resolution: read, read, and read again; get confirmation on your employment classification; review any applicable non-compete clause; evaluate the termination terms and conditions; and don’t be afraid to ask questions. Protecting your interests up front only benefits you in the long run.
Please reach out to Anna Drake at [email protected] if you have any questions or concerns.