Friday, October 25, 2013

Arbitration Agreement That Provides For Fees To Prevailing Party, Contrary To The FLSA, Is Unenforceable

In Hernandez v. Colonial Grocers, Inc. (2D11-3415), the Second District determined an arbitration provision was invalid because it conflicted with the relief afforded by the relevant federal statute. The plaintiff filed a lawsuit asserting violations of the "Fair Labor Standards Act [29 U.S.C. § 216(b)] and section 440.205, Florida Statutes (2010), of the Florida Workers' Compensation Act.” The trial court granted the defendant's motion to compel arbitration pursuant to a provision of the employment contract. That arbitration clause included the following language: “...Although the parties shall initially bear the cost of arbitration equally, the prevailing party, if any as determined by the arbitrator at the request of the parties which is hereby deemed made, shall be entitled to reimbursement for its share of costs and reasonable attorneys' fees, as well as interest at the statutory rate.” 

The Second District first rejected the appellant’s argument that Flyer Printing Co. v. Hill, 805 So. 2d 829 (Fla. 2d DCA 2001) provided "a bright-line rule that any fee-splitting provision renders an arbitration clause unenforceable.”

The court stated that "Hernandez also argues on appeal that the instant arbitration agreement is unenforceable because it includes a prevailing party attorney's fee provision that contradicts the attorney's fee provision of the statute under which he brought suit.” As to that second issue, Flyer Printing did require reversal. 
Here, Hernandez brought suit under the federal Fair Labor Standards Act and the Florida Workers' Compensation Law. The federal act states that a prevailing plaintiff is entitled to an award of reasonable attorney's fees, but it does not allow for prevailing party fees for the defendant. 29 U.S.C. § 216(b). The instant arbitration agreement, however, states that whichever party prevails "shall be entitled to reimbursement for its share of costs and reasonable attorneys' fees." Accordingly, should the arbitrator declare Colonial the prevailing party, Hernandez would be obligated under the arbitration agreement to pay Colonial's attorney's fees. This renders the potential cost of arbitration to be far greater to Hernandez than the potential cost of civil litigation, which under no circumstances would include Colonial's attorney’s fees. As such, while the parties' agreement may not contravene any of Hernandez’s rights under the federal act, it does expose him to a potential liability to which he would not be exposed if the litigation occurred in civil court because the federal statute specifically protects him from such liability.
"This is a sufficient enough chilling effect to defeat the remedial purpose of the federal act. The attorney's fees provision of the Fair Labor Standards Act is intended to encourage employees to seek redress when they believe they have been wronged by an employer. The arbitration agreement, however, does just the opposite— it discourages the employee from pursuing a claim. As such, under Flying Printing, it is unenforceable."


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