Trial Magazine

When corporations harm workers and consumers, cases that should be heard by a judge or jury are often funneled into the secret system of forced arbitration.¹ This process is controlled by the wrongdoers, and there is no right to go to court, no right to a jury, no right to a written record, no right to discovery, no transparency, no legal precedents to follow, no opportunity for group actions when it would be too difficult or costly to file a claim alone, no guarantee of an adjudicator with legal expertise, and no meaningful judicial review.² Without these checks and balances, the deck is stacked heavily against workers, patients, and consumers.

For instance, in the employment context, forced arbitration clauses cover millions of workers, yet, of those who brought claims against their employers in arbitration, less than one-ten-thousandth of 1% were successful.³ And one study showed that approximately 66% of arbitrations involved corporate repeat players, who were nearly twice as likely to prevail as non-repeat players.⁴

Of course, this is not the only baked-in advantage to employers. Employment rights attorneys know the process: The arbitrator is selected from a pool of five to seven candidates that the arbitration company provides, and the employer and employee take turns striking candidates until the last candidate remaining becomes the arbitrator. This sounds fair on the surface; however, when there are only one or two arbitrators in that pool who are favorable to an employee, it always allows the employer to strike them.

And it’s not just about what side of the bar the arbitrators are selected from. Arbitrators in consumer and employment cases are mostly male and overwhelmingly white. At AAA and JAMS, the two largest consumer and employment arbitration providers in the country, 88% of arbitrators are white and 77% are male.⁵

At the April 9, 2024, U.S. Senate Committee on the Judiciary’s hearing on “Small Print, Big Impact: Examining the Effects of Forced Arbitration,” Chairman Dick Durbin (D-Ill.) offered a common-sense observation: “I listened to the defense of forced arbitration, and what I heard was, and I wrote down the words: ‘It’s easier, it’s cheaper, it’s faster, and just as fair as court.’ If that is all true, then why is it forced? If it’s such a good idea, why don’t you just make it an option?”⁶

Understanding the fundamental problem with forced arbitration starts with the basic understanding of the dual purpose of civil litigation: to hold society accountable and to foster needed change. With forced arbitration, systemic misconduct can continue in secret and leave injured plaintiffs without meaningful recourse.

A Landmark Step Toward Ending Forced Arbitration

Many of the efforts to end forced arbitration have been focused on the employment context, as more than half of U.S. workers are subject to forced arbitration clauses as a condition of employment.⁷ One significant step forward was the bipartisan Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA), signed into law on March 3, 2022. This amended the Federal Arbitration Act (FAA) to allow employees asserting claims for sexual assault or sexual harassment under federal, state, or tribal law the choice to opt out of predispute forced arbitration agreements and bring those claims in court. The same rationale for protecting sexual assault and harassment victims demands passing similar legislation to protect victims of race, religion, and age discrimination. All protected classes of people should be treated equally under the law.

Many lawyers concede to forced arbitration demands even in cases that involve sexual harassment, unaware that the EFAA gives the employee-plaintiff the right to have all their claims heard in court, not just the claims for sexual harassment. Specifically, §402(a) of the act provides that “no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.”⁸

Since the EFAA was enacted, federal courts across the country have begun interpreting its broad scope. The Southern District of California held in Molchanoff v. SOLV Energy, LLC that “the EFAA ‘keys the scope of the invalidation of the arbitration clause to the entire “case” relating to the sexual harassment dispute’ and ‘thus does not limit the invalidation to the claim or claims in which that dispute plays a part.’”⁹

In Michael v. Bravo Brio Restaurants LLC, the District of New Jersey blocked arbitration under the EFAA because the “Plaintiff’s Complaint—which explicitly references a hostile work environment claim that pleads facts alleging [the] Defendant discriminated against her because she is a transgender female—is not lacking simply because it does not include the words ‘sexual assault’ or ‘sexual harassment. . . .’ [H]arassment under Title VII can be shown where there is no sexual attraction but where the harasser displays hostility to the presence of a particular sex in the workplace.”¹⁰

In Doe v. Saber Healthcare Group, the Middle District of Pennsylvania held that “the remark from [the] plaintiff’s heterosexual supervisor about not believing in gay marriage” combined with racial slurs and an assault by a resident sufficiently pleaded a sexual harassment hostile work environment claim and that per “the EFAA, the Agreement is invalid with respect to the entire case.”¹¹

And in Mitura v. Finco Services, Inc., Isabella Mitura, a Korean American woman, sued her former employer for various claims, including Family Medical Leave Act interference and retaliation, race discrimination under §1981, and Equal Pay Act violations.¹² Mitura’s amended complaint detailed weekly degrading comments, such as being called “a single woman,” “an old woman,” and “an old Asian woman with no kids,” along with offensive remarks about menstruation.¹³ The defendants protested that Mitura’s sexual harassment claim was a mere tactic to circumvent a binding arbitration agreement. The Southern District of New York ruled in her favor: “Taken together, these allegations plausibly state a claim that relates to sexual harassment as required by the EFAA.”¹⁴

But in Mera v. SA Hospitality Group., LLC, the Southern District of New York held that the employee’s sexual harassment claims were not sufficiently related to the collective action claim that “all non-exempt employees, including servers, bartenders, barbacks, waiters, bussers, and food runners” were subjected to the employer’s “willful failure and refusal to pay them their proper wages.”¹⁵ Had the employee asserted that she suffered retaliation under the Fair Labor Standards Act along with acts that overlapped with the sexual harassment or related retaliation and not sought to void every other employee’s forced arbitration agreement, the court may have held differently.

Recently, in Olivieri v. Stifel, Nicolaus & Co., the employer moved to compel arbitration of the plaintiff’s sexual assault, harassment, and retaliation claims based on a forced arbitration agreement in her employment contract.¹⁶ Two days after the EFAA passed, the Eastern District of New York initially granted that motion but shortly after allowed the plaintiff to amend her complaint to allege ongoing retaliatory conduct, arguing that the new law applied to her claims under the continuing violation doctrine. The district court and later the Second Circuit agreed.¹⁷

Olivieri is important because it allows employees who suffered harassment that started before the EFAA became effective to invalidate forced arbitration agreements if the conduct continued beyond the law’s effective date. While Olivieri was (unusually) still employed during litigation when the EFAA became effective, it may be worth it to add any post-employment retaliation claims that may be available to invoke the EFAA.

---

If the parties have not properly contracted to arbitrate, courts have no authority to compel arbitration.

---

Make the Employer Prove the Existence of the Contract

Beyond the EFAA, attorneys should fight against forced arbitration at every possible opportunity. In Rent-A-Center, West Inc. v. Jackson, the U.S. Supreme Court laid out “the fundamental principle that arbitration is a matter of contract” and that the law “places arbitration agreements on an equal footing with other contracts.”¹⁸ If the parties have not properly contracted to arbitrate, courts have no authority to compel arbitration.

Properly contracting means that there has been both formation through offer, acceptance, and consideration; and that the dispute at issue falls within the scope of matters contractually agreed to be arbitrated. “When deciding whether the parties agreed to arbitrate a certain matter . . . , courts generally . . . should apply ordinary state-law principles that govern the formation of contracts.”¹⁹ “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”²⁰ You must review the specific language in the relevant documents to determine whether formation occurred—there is no blanket argument that applies to all formation issues across the board.

In Granite Rock Co. v. International Brotherhood of Teamsters, the Supreme Court held that “courts should order arbitration of a dispute only where the court is satisfied that neither the formation of the parties’ arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its enforceability or applicability to the dispute is in issue.”²¹ When either are in dispute, the court must resolve both issues before compelling arbitration.²²

In Morgan v. Sundance, Inc., the Court clarified that “the FAA’s ‘policy favoring arbitration’ does not authorize federal courts to invent special, arbitration-preferring procedural rules. . . . The policy is to make ‘arbitration agreements as enforceable as other contracts, but not more so.’ Accordingly, a court must hold a party to its arbitration contract just as the court would to any other kind. But a court may not devise novel rules to favor arbitration over litigation.”²³

When opposing forced arbitration, make the other party prove offer, acceptance, and consideration as with any contract. Start by investigating how the alleged agreements were purportedly signed—if they were actually signed at all. In Bazemore v. Papa John’s U.S.A., Inc., the Sixth Circuit declined to compel arbitration, holding that the party seeking to enforce arbitration must prove the existence of the agreement and that “an electronic signature is legally valid only when made by the action of the person the signature purports to represent—which is itself a question of fact.”²⁴ In that case, the plaintiff testified that he never saw the agreement, which was sufficient “to create a genuine issue as to whether he signed it.”²⁵

And in Roberts-Banks v. Family Dollar of Tennessee, Inc. and Hazlett v. Family Dollar Stores of Tennessee, Inc., the motion to compel arbitration was denied when each employee attested that a manager had control of the mouse, quickly scrolled through the documents, and clicked the box to electronically sign.²⁶

In other cases, courts have held that an “employee’s ‘acknowledgement’ of the published ADR Policy does not suddenly transmute the ADR Policy into an acceptance of an offer”²⁷ and that “the employee merely acknowledged his receipt and understanding of the items presented to him. He never expressed assent to those terms. Thus, without a meeting of the minds, the parties had not formed a valid contract.”²⁸

In Shockley v. PrimeLending, the Eighth Circuit held that no contract was formed by merely asking an employee to acknowledge receipt and review of an arbitration provision: “We are aware of no legal authority holding that an employee’s general knowledge or awareness of the existence of a contract constitutes the positive and unambiguous unequivocal acceptance.”²⁹

In a case my firm handled, Rousseau v. Setjo, L.L.C., the purported contract provided: “This Agreement shall become effective when all parties have signed it.” Because the employer never signed it before the complaint was filed, the court held that the agreement never became effective.³⁰

Challenge the Agreement as Unenforceable

Beyond the question of whether a contract between the parties exists, plaintiffs can raise other grounds for determining that a forced arbitration agreement is unenforceable or invalid.

Unconscionability doctrine. Plaintiffs can argue that forced arbitration clauses are unconscionable. To prove unconscionability under state law, the plaintiff must typically prove that the agreement is both procedurally and substantively unconscionable. “Procedural unconscionability analysis focuses on ‘oppression’ or ‘surprise.’”³¹ And “an arbitration provision is substantively unconscionable if it is ‘overly harsh’ or generates ‘one-sided’ results.”³²

In many states, this is incredibly difficult, but the plaintiff can have some success if the forced arbitration agreement calls for the plaintiff to pay the cost of the arbitration or that the arbitration be held in an inconvenient forum.³³ In more employee-friendly states like California, this argument is easier. In Ronderos v. USF Reddaway, Inc., the Ninth Circuit held that an arbitration agreement was both procedurally and substantively unconscionable.³⁴

Procedurally, it was presented to the employee on a take-it-or-leave-it basis with no opportunity for negotiation and was “pushed” for signature immediately, indicating a lack of meaningful choice. Substantively, the agreement included unfair terms such as a one-sided statute of limitations and a carve-out allowing only the employer to seek preliminary injunctive relief in court. As the court noted, “the agreement lacks basic fairness and mutuality,” and the district court declined to sever the unconscionable provisions, finding the entire agreement unenforceable.³⁵

---

If the defendant reserves the right to unilaterally change or end the contract, plaintiffs may be able to argue that the lack of mutuality makes the contract unenforceable.

---

Lack of mutuality. If the defendant reserves the right to unilaterally change or end the contract, plaintiffs may be able to argue that the lack of mutuality makes the contract unenforceable. Again, this depends on the specifics of the state law that applies to the contract.

In Larsen v. Citibank FSB, for example, the Eleventh Circuit held: “Under both Washington and Ohio law, illusoriness arises when there is a lack of mutuality. . . . First, under Washington law, a contract is illusory only if it lacks all consideration and mutuality of obligation, e.g., the promisor has no obligations with regard to any parts of the contract. . . . In Ohio, a contract is illusory only when by its terms the promisor retains an unlimited right to determine the nature or extent of his performance.”³⁶

The Sixth Circuit has held that under Michigan law, for example, the lack of mutuality defense applies only when the employee receives absolutely no consideration, which means that even if there is just continued employment listed as consideration, this argument fails.³⁷ With this incredibly difficult standard in mind, the lack of mutuality defense could come into play when there is a separate arbitration contract with the only consideration being a mutual agreement to arbitrate with the employer having the right to opt out of arbitration or unilaterally cancel the contract.

Ambiguous terms. In Washington State Department of Licensing v. Cougar Den, Inc., the Supreme Court instructed courts to “construe any ambiguities against the drafter who enjoys the power of the pen.”³⁸ In Clemons v. Norton Healthcare Inc. Retirement Plan, the Sixth Circuit similarly held, “Courts construe ambiguities against a drafter to remind the next drafter to state his terms clearly when he comes to the negotiating table. It is a prophylactic rule, not a remedial device.”³⁹ And, as an example of state law, in McKay Machine Co. v. Rodman, the Ohio Supreme Court succinctly and plainly held, “In other words, he who speaks must speak plainly or the other party may explain to his own advantage.”⁴⁰

These arguments are case-specific, and there are not many reported decisions addressing such arguments. In one case my firm handled, the agreement provided that “all disputes” (not just claims) must be submitted to arbitration, so we argued that the employer’s failure to submit disputed disciplinary issues or a termination decision to arbitration waived its rights to later arbitrate claims arising from those disputes. Alternatively, we argued that if the arbitration agreement provided that “all disputes” must go to arbitration, the employee can choose to arbitrate the dispute (in addition to the claims). For example, that the employer was wrong to issue the disciplinary action or fire the employee without having to prove the elements of a formal legal claim. We pointed to the “all disputes” provision as being akin to an individual union contract that provides for the resolution of disputes—not claims—through arbitration.

In another case, the arbitration agreement excluded from the scope of arbitration “any dispute related to workers’ compensation” instead of just excluding workers’ compensation claims. We argued that the workers’ compensation retaliation was “related” to workers’ compensation and thus, fell within the exclusion.

The goal here is to point out to the employer not just the risk of losing this argument for this employee but also that losing this argument means there is precedent for every other employee who signed the same agreement to follow suit—or that the employer faces the costs of redoing all its employee arbitration agreements.

Refusal to pay arbitration fees. Section 3 of the FAA provides that once an enforceable arbitration agreement has been provided, the court shall stay (not dismiss) the case pending arbitration, “providing the applicant for the stay is not in default in proceeding with such arbitration.” In Pre-Paid Legal Services, Inc. v. Cahill, the Tenth Circuit held that while the “failure to pay arbitration fees constitutes a ‘default’ under §3,” the district court had authority to only reinstate the case, not to enter default judgment.⁴¹

In Wallrich v. Samsung Electronics America, Inc., the Seventh Circuit reversed the district court’s order compelling Samsung to pay its fee obligations, holding that the plaintiffs “could have advanced Samsung’s fees and continued with arbitration, or they can now pursue their claims on the merits in district court.”⁴² The Seventh Circuit deemed this a completion of the arbitration process.

But in Freeman v. SmartPay Leasing, LLC, the Eleventh Circuit held that the failure to pay the fee amounted to “waiver,” resulting in the same remedy—returning the case to the active docket before the district court.⁴³ So, while different terminology may be used from circuit to circuit, the outcome is relatively consistent.

However, there may still be a path to a default judgment arising from the employer’s failure to pay the fee. In Hernandez v. Acosta Tractors Inc., the Eleventh Circuit held that the district court has the authority to enter default as a sanction when there is a willful failure to pay the fees.⁴⁴ In that case, the employer failed to pay the arbitrator’s fees following what it viewed as adverse rulings. Arguably, refusing to pay the fee after expressly moving for arbitration and causing delays can be viewed as willful, depending on the judge’s receptiveness.

Other breaches by the employer. Contracts to arbitrate often have other requirements, many of which are onerous for the employee. But many of these steps also create obligations for the employer, such as agreeing to provide specific notices at specified times in a specified manner following a complaint of discrimination or harassment. The agreement may require the parties to mediate any disputed employment decision. Often, the employer lacks any knowledge of their own contractual requirements and fails to follow them. How you address these problems is critical.

Arguing to a district court that the employer failed to comply with preconditions or conditions precedent to arbitration is likely a mistake. In Howsam v. Dean Witter Reynolds, Inc., the Supreme Court, quoting and relying on various parts and notes in the Revised Uniform Arbitration Act of 2000, held that “whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.”⁴⁵ Thus, an argument regarding preconditions being met is best saved as a backup argument to be made as an initial matter before the arbitrator, rather than before the court.

“At the arbitration-enforcement stage, parties may raise certain standard breach-of-contract defenses.”⁴⁶ Thus, the better argument before the district court is to argue that under state law, “a party in material breach may not enforce a provision of a contract that is favorable to him.”⁴⁷ In Crider v. GMRI, Inc., an Ohio state appellate court held: “GMRI proceeded directly to termination and did not invoke any of the steps in the provision. GMRI acted inconsistently with the terms of arbitration, thereby waiving it. Therefore, on this record, we conclude that the trial court properly refused to enforce the arbitration provision.”⁴⁸

Depending on the state law that applies, the burden to prove performance may fall on the party seeking to enforce the contract,⁴⁹ or it may be an affirmative defense requiring the employee to show a substantial breach by the employer.⁵⁰

Will these arguments to overcome forced arbitration always be successful? No. But, if properly supported by the facts, these arguments provide plaintiffs with a shot to avoid the black hole of forced arbitration. Using the above arguments creates a right to an immediate appeal of an order to compel arbitration. It adds cost and the risk that many, if not every one, of the employer’s arbitration agreements will be ruled invalid as a matter of collateral estoppel.

Until laws like the EFAA are passed to protect all workers from forced arbitration, attorneys should not stand on the sidelines. Challenge purported arbitration agreements so your clients can have their day in court.

---

Brian Spitz is the founding and managing partner of Spitz, The Employee’s Law Firm with offices throughout Kentucky, Michigan, North Carolina, Ohio, and Texas and can be reached at brian.spitz@spitzlawfirm.com.

---

Notes

1. Am. Ass’n for Justice, The Truth About Forced Arbitration, Sept. 2019, at 6, https://www.justice.org/resources/research/the-truth-about-forced-arbitration.
2. Id.
3. Id. at 28.
4. Id.
5. Am. Ass’n for Justice, Where White Men Rule: How the Secretive System of Forced Arbitration Hurts Women and Minorities, June 2021, at 2, https://www.justice.org/resources/research/forced-arbitration-hurts-women-and-minorities.
6. Small Print, Big Impact: Examining the Effects of Forced Arbitration, Hearing Before the S. Comm. on the Judiciary, 118th Cong (2024), https://www.judiciary.senate.gov/committee-activity/hearings/small-print-big-impact-examining-the-effects-of-forced-arbitration.
7. Alexander J. S. Colvin, The Growing Use of Mandatory Arbitration, Econ. Pol’y Inst., 10 (2018), https://files.epi.org/pdf/144131.pdf.
8. 9 U.S.C. §402(a) (emphasis added).
9. 2024 WL 899384, at *4 (S.D. Cal. Mar. 1, 2024) (quoting Johnson v. Everyrealm, Inc., 657 F. Supp. 3d 535, 558 (S.D.N.Y. 2023)).
10. 2024 WL 2923591, at *6 (D.N.J. June 10, 2024).
11. 2024 WL 2749156, at *7–8 (M.D. Pa. May 29, 2024).
12. 712 F. Supp. 3d 442 (S.D.N.Y. 2024).
13. Id. at 449.
14. Id. at 454.
15. 675 F. Supp. 3d 442, 448 (S.D.N.Y. 2023).
16. 112 F.4th 74 (2d Cir. 2024).
17. Id.
18. 561 U.S. 63, 67 (2010).
19. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); accord Donaldson Co. v. Burroughs Diesel, Inc., 581 F.3d 726, 731 (8th Cir. 2009).
20. First Options, 514 U.S. at 944 (quotations omitted).
21. 561 U.S. 287, 299 (2010) (emphasis in original).
22. Id.
23. Morgan v. Sundance, Inc., 142 S. Ct. 1708, 1713 (2022) (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, n.12 (1967)).
24. 74 F.4th 795, 798 (6th Cir. 2023).
25. Id. at 798; see also Kass v. PayPal Inc., 75 F.4th 693, 704 (7th Cir. 2023); Edmonson v. Captain D’s LLC, 2024 WL 2164619, at *2–3 (M.D. Tenn. May 14, 2024); Dillard v. Canal St. Brewing Co., 2024 WL 448784, at *2 (E.D. Mich. Feb. 6, 2024).
26. 2019 WL 5075832 (E.D. Tenn. Oct. 9, 2019); 2021 WL 663665, at *7 (M.D. Tenn. Feb. 19, 2021).
27. Jackson v. Higher Educ. Loan Auth. of Mo., 497 S.W.3d 283, 290 (Mo. Ct. App. 2016).
28. Hardwick v. Sherwin Williams Co., 2002 WL 31992364, at *2 (Ohio Ct. App. Feb. 13, 2003).
29. 929 F.3d 1012, 1019 (8th Cir. 2019) (quoting Katz v. Anheuser-Busch, Inc., 347 S.W.3d 533, 545 (Mo. Ct. App. 2011)).
30. 2020 WL 6196168, at *4 (Ohio Ct. App. Oct. 22, 2020).
31. Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006).
32. Id.
33. See Ingle v. Cir. City Stores, Inc., 328 F.3d 1165, 1177 (9th Cir. 2003).
34. 114 F.4th 1080 (9th Cir. 2024).
35. Id.
36. 871 F.3d 1295, 1320 (11th Cir. 2017) (emphasis in original) (internal quotes and citations omitted).
37. Solomon v. CARite Corp. LLC, 837 F. App’x 355, 361 (6th Cir. 2020).
38. 586 U.S. 347 (2019).
39. 890 F.3d 254, 268 (6th Cir. 2018) (emphasis in original).
40. 228 N.E.2d 304, 307 (1967).
41. 786 F.3d 1287, 1294 (10th Cir. 2015); see also Sink v. Aden Enters., Inc., 352 F.3d 1197 (9th Cir. 2003).
42. 106 F.4th 609, 622 (7th Cir. 2024).
43. 771 F. App’x 926, 933 (11th Cir. 2019).
44. 898 F.3d 1301, 1306 (11th Cir. 2018).
45. 537 U.S. 79, 84–85 (2002) (quoting Revised Universal Arbitration Act §6, comment 2, 7 U.L.A., at 13); see also Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 383 (1st Cir. 2011).
46. Brown v. Royal Caribbean Cruises, Ltd., 549 F. App’x 861, 863 (11th Cir. 2013) (internal quotations omitted).
47. Horne v. Elec. Eel Mfg. Co., Inc., 987 F.3d 704, 718 (7th Cir. 2021) (applying Illinois law); see also Roanoke Props. Ltd. P’ship v. Dewberry & Davis, 30 F. App’x 121, 124 (4th Cir. 2002) (applying Virginia law).
48. 154 N.E.3d 1250 (Ohio Ct. App. 2020).
49. Horne, 987 F.3d at 718.
50. Alonso v. Westcoast Corp., 920 F.3d 878, 883 (5th Cir. 2019).