Question. Can I be compelled to arbitrate my claim against my employer if the costs of arbitration are prohibitively expensive and I am effectively prevented from vindicating my rights due to financial hardship even if arbitration provision is contained in my employment agreement?
Answer. Not necessarily. Claimant commenced a lawsuit on behalf of himself and others similarly situated, for damages arising from Employer's alleged failure to pay overtime wages. Employer moves to compel arbitration under the employment agreement pursuant to CPLR 7501 & 7503.
The effect of an arbitration agreement is provided for in CPLR 7501 which states that:
[a] written agreement to submit any controversy thereafter arising or any existing controversy to arbitration is enforceable without regard to the justiciable character of the controversy and confers jurisdiction on the courts of the state to enforce it and to enter judgment on an award. In determining any matter arising under this article, the court shall not consider whether the claim with respect to which arbitration is sought is tenable, or otherwise pass upon the merits of the dispute (CPLR 7501).
CPLR 7503(a) provides the procedure for a party to compel arbitration.
Application to compel or stay arbitration; stay of action; notice of intention to arbitrate (a) Application to compel arbitration; stay of action. A party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration. Where there is no substantial question whether a valid agreement was made or complied with, and the claim sought to be arbitrated is not barred by limitation under subdivision (b) of section 7502, the court shall direct the parties to arbitrate. Where any such question is raised, it shall be tried forthwith in said court. If an issue claimed to be arbitrable is involved in an action pending in a court having jurisdiction to hear a motion to compel arbitration, the application shall be made by motion in that action. If the application is granted, the order shall operate to stay a pending or subsequent action, or so much of it as is referable to arbitration (CPLR 7503).
Arbitration is a creature of contract and the long established policy of New York courts is to interfere as little as possible with the freedom of consenting parties in structuring their arbitration relationship. However, that policy is not without caveats or scrutiny. It has also been established that so long as the prospective litigant effectively may vindicate his or her statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.
It has been further recognized that the existence of large arbitration costs could preclude a litigant from effectively vindicating their federal statutory rights in the arbitral forum, a result which cuts against the broad public policy in favor of arbitration. Where a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring the costs that would deter the party from arbitrating the claim.
The issue of a Claimant's financial ability is to be resolved on a case-by-case basis and that inquiry should at minimum consider the following questions: (1) whether the litigant can pay the arbitration fees and costs; (2) what is the expected cost differential between arbitration and litigation in court; and (3) whether the cost differential is so substantial as to deter the bringing of claims in the arbitral forum.