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The use of arbitration to resolve employment-related disputes, including federal statutory causes of action, has grown exponentially. Ironically, the increased use of arbitration has generated significant litigation over the rules that should govern proceedings between employers and employees. In particular, the issue of cost allocation has arisen frequently as employees nationwide challenge agreements requiring employees to share or split the forum costs for arbitration with the employer. But the courts themselves are divided on such cost-sharing provisions. Congress passed the Federal Arbitration Act (FAA), 9 U.S.C. 1-16, to reverse judicial hostility toward predispute arbitration agreements by making written agreements to arbitrate disputes related to contracts involving interstate commerce as enforceable as other contracts. See 9 U.S.C. 2 (1994); Southland Corp. v. Keating, 465 U.S. 1, 10 (1984). During the past two decades, the U.S. Supreme Court has consistently found federal statutory claims subject to arbitration under agreements coming within the scope of the FAA. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). Just last term, the Court affirmed the basic arbitrability of most employment-related claims by narrowly interpreting an exception to the FAA for “contracts of employment of … workers engaged in foreign or interstate commerce” to apply only to workers actually employed in transporting goods in interstate commerce. See Circuit City Stores Inc. v. Adams, 532 U.S. 105 (2001). However, while upholding the general arbitrability of statutory claims, the Court has also noted that by agreeing to arbitration, a party does not give up his or her substantive rights under the statute. See Mitsubishi Motors Corp. v. Soler Chrysler Plymouth Inc., 473 U.S. 614, 628 (1985). Although the arbitral process is not required to replicate courtroom procedures, the claimant still must be able to vindicate effectively his or her statutory rights through the process provided under the arbitration agreement. See id. at 637. See also Gilmer, 500 U.S. at 28; Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 242 (1987). CHALLENGES TO COST SHARING The Supreme Court’s pronouncements that one does not waive substantive statutory rights simply by agreeing to arbitration and that arbitration is appropriate if the process allows the vindication of the party’s statutory claims have fueled challenges to provisions requiring employees to share the costs of arbitrating federal employment-related claims. The major federal statutory schemes regulating employment practices (including Title VII, 42 U.S.C. 1988(b), 2000e-5(k) (1994); the Americans With Disabilities Act, 42 U.S.C. 12117(a) (1994) (incorporating remedies under 42 U.S.C. 2000e-5); the Fair Labor Standards Act, 29 U.S.C. 216(b) (1994); the Age Discrimination in Employment Act, 29 U.S.C. 626(b) (1994) (incorporating remedies under 29 U.S.C. 216); and the Family and Medical Leave Act, 29 U.S.C. 2617(a)(3) (1994)) permit an award of attorney fees and costs to the prevailing employee. Employees seeking to bring claims under these statutes but faced with arbitration agreements requiring the sharing of arbitration costs have argued that the fee-splitting provisions effect an impermissible waiver of the statutory right to attorney fees and costs and prevent effective vindication of the employees’ statutory rights. In response, the courts have adopted two general approaches: a per se unenforceability rule and a case-by-case analysis. The per se unenforceability rule may be traced to Cole v. Burns International Security Services, 105 F.3d 1465 (D.C. Cir. 1997), in which the U.S. Court of Appeals for the District of Columbia considered the enforceability of an arbitration agreement that covered a former employee’s Title VII claims but was silent on cost allocation. The court contemplated whether the employee could be required to pay part of the arbitrators’ fee to pursue his statutory claims and concluded that he could not. See id. at 1468, 1485-86. The D.C. Circuit found that requiring payment of part of the fees would interfere with the employee’s ability to pursue and vindicate statutory rights. Therefore, the court interpreted the agreement as requiring the employer to pay the arbitrators’ fees. The 11th Circuit subsequently cited Cole in another case involving a Title VII claim and an arbitration agreement not specifically addressing costs. See Paladino v. Avnet Computer Technologies Inc., 134 F.3d 1054, 1062 (11th Cir. 1998). The 11th Circuit, though, refused to save the arbitration clause and held instead that the potential that the employee would bear significant costs to arbitrate coupled with a clause limiting available damages rendered the arbitration agreement unenforceable. Recently, the 11th Circuit confirmed its adherence to the per se unenforceability rule by finding unenforceable an arbitration agreement that expressly required the employee to split the costs of arbitrating her Title VII claims with her former employer. See Perez v. Globe Airport Security Services Inc., 253 F.3d 1280 (11th Cir. 2001). Additional courts, including the 6th and 10th circuits, have also endorsed the per se unenforceability rule in employment-related cases involving mandatory fee-sharing provisions. See Floss v. Ryan’s Family Steak Houses Inc., 211 F.3d 306, 314 (6th Cir. 2000); Shankle v. B-G Maintenance Management, 163 F.3d 1230, 1233 (10th Cir. 1999); Gourley v. Yellow Transportation LLC, 178 F. Supp. 2d 1196 (D. Colo. 2001); Jones v. Fujitsu Network Communications Inc., 81 F. Supp. 2d 688, 692-93 (N.D. Texas 1999). Interestingly, although the 10th Circuit purported to follow the per se unenforceability rule of Cole in Shankle v. B-G Maintenance, the court’s opinion suggests the second major approach taken by courts in considering employees’ challenges to fee-splitting provisions. In finding that the provision was not enforceable, the 10th Circuit discussed the employee’s actual ability to pay the potential costs of arbitrating his claim, which characterizes the case-by-case analysis adopted by other courts. See Shankle, 163 F.3d at 1234-35. See also Bradford v. Rockwell Semiconductor Systems Inc., 238 F.3d 549, 554-55 (4th Cir. 2001) (discussing Shankle). The 1st, 4th, 5th and 7th circuits have applied this case-specific analysis in deciding whether an employee could be required to share the arbitration costs of a federal statutory claim. See Bradford, 238 F.3d 549; Williams v. Cigna Financial Advisors Inc., 197 F.3d 752 (5th Cir. 1999); Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith Inc., 170 F.3d 1 (1st Cir. 1999); Koveleskie v. SBC Capital Markets Inc., 167 F.3d 361 (7th Cir. 1999). The case-by-case approach has also been used by the 8th Circuit in a decision concerning a nonemployment-related statutory claim. See Dobbins v. Hawk’s Enterprises, 198 F.3d 715 (8th Cir. 1999). Like the agreement considered by the D.C. Circuit in Cole, the 1st, 7th and 8th circuits did not have before them agreements that expressly provided for fee-sharing. However, later decisions by the 4th Circuit and three federal district courts applying the case-by-case approach did concern express fee-sharing requirements and found support for a case-specific analysis in the 1st, 7th and 8th circuits’ decisions. See Bradford, 238 F.3d at 553, 555-56; Manuel v. Honda R&D Americas Inc., 175 F. Supp. 2d 987, 993-94 (S.D. Ohio 2001); Etokie v. CarMax Auto Superstores Inc., 133 F. Supp. 2d 390, 392-93 (D. Md. 2000); Quinn v. EMC Corp., 109 F. Supp. 2d 681, 685-86 (S.D. Texas 2000). Recent decisions applying the case-by-case approach have also cited the Supreme Court’s opinion in Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), for support. See Bradford, 238 F.3d at 556-57; Manuel, 178 F. Supp. 2d at 992-93; Dumais v. American Golf Corp., 150 F. Supp. 2d 1182, 1189-90 (D.N.M. 2001). In Randolph, the court considered whether an arbitration agreement’s silence regarding costs rendered the agreement unenforceable because of the potential that a party seeking to enforce a statutory claim could face prohibitive expenses in pursuing arbitration. While acknowledging that forum costs could, in certain circumstances, prevent the effective vindication of a party’s statutory rights, the Court concluded that the plaintiff had failed to show that excessive costs prevented her from arbitrating her claims. In essence, the Court adopted a case-by-case approach with the burden of proof on the claimant opposing arbitration. See Randolph, 531 U.S. at 89-92. HOW TO APPLY ‘RANDOLPH’ Not all courts, though, have accepted that Randolph should apply to arbitration agreements with express cost-sharing provisions as well as to agreements that are silent as to costs. The 11th Circuit distinguished Randolph, finding the Supreme Court’s decision inapplicable to an arbitration agreement that specifically provided that the employee share the costs of arbitration and has continued to apply the per se unenforceable rule. See Perez v. Globe Airport Sec. Services Inc., 253 F.3d 1280, 1284-86 (11th Cir. 2001). In another recent decision, the D.C. Circuit assumed that Randolph did not disturb the court’s earlier Cole opinion. See Brown v. Wheat First Securities Inc., 257 F.3d 821, 824 (D.C. Cir. 2001). Finally, one federal district court ignored Randolph and relied upon 10th Circuit precedent to find a mandatory fee-sharing requirement unenforceable. See Gourley v. Yellow Transportation LLC, 178 F. Supp. 2d 1196, 1203-04 (D. Colo. 2001). This continued split is especially problematic for employers operating in multiple circuits and districts. Such employers and their counsel must first determine whether even to include fee-sharing provisions in their employee arbitration agreements. If cost-sharing requirements are included, limited steps may be taken to increase the likelihood that the provisions will be enforced. For instance, capping the employee’s liability for costs based on a reasonable percentage of the employee’s earnings may help convince a court applying a case-specific analysis to uphold a cost-sharing requirement. See Etokie, 133 F. Supp. 2d at 392-93. An employer may also protect against the possibility that the cost-sharing requirement will be found unenforceable by including a severability provision in the agreement. A failure to include such a clause may result in a finding that the entire arbitration agreement is unenforceable. Regardless of the measures taken, employers should expect more challenges to fee-sharing provisions. R. Brian Tipton is an associate at Montgomery, Ala.’s Sasser, Littleton & Stidham.

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