Should an employer shoulder arbitration fees?

In a recent case, a man claimed that his termination was due to discrimination and in retaliation for reporting racist comments to his senior director. In response, his employer alleged that it terminated him due to poor performance.

Houston AN USA, LLC – doing business as AutoNation USA Houston – hired a general manager for its Houston-based car dealership. During the onboarding process, he allegedly electronically signed and accepted an arbitration agreement.

The agreement required the arbitration of all claims and disputes arising from, relating to, or connected with employment, including termination and discrimination claims.

The manager reported that he heard one of his superiors making racist comments. AutoNation placed the manager on a performance improvement plan the next month and eventually terminated him. He sued AutoNation for race discrimination and retaliation under federal and state law.

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AutoNation filed a motion to compel arbitration and to stay or to dismiss the lawsuit. Opposing this, the manager made the following arguments:

• AutoNation failed to prove that he signed the arbitration agreement
• Alternatively, the agreement was unconscionable and invalid because excessive arbitration costs would prevent him from effectively pursuing his discrimination and retaliation claims through arbitration
• The agreement made the arbitral forum inaccessible because it failed to allocate arbitration fees to the employer, given that the standard and customary employment arbitration rules of arbitration organizations such as the American Arbitration Association (AAA) and JAMS required employers to pay all costs except the initial filing fee

The manager presented evidence to support his position. First was an AAA invoice charging $34,104 for an unrelated employment discrimination case involving a three-day hearing. Next, an affidavit from the manager’s attorney said that his case was more complicated and would likely involve a longer trial.

Lastly, the manager gave his own affidavit stating that he retained no employment from November 2017 to February 2020, presently earned significantly less than when was with AutoNation, and incurred major debt.

AutoNation made no objections to the manager’s evidence and provided no responsive evidence about arbitration costs.

Fees feared by manager are speculative

The trial court denied AutoNation’s motion to compel arbitration. The court of appeals affirmed this decision. It did not answer the question of whether the manager signed the arbitration agreement but found that the agreement was unconscionable since he would likely have to pay prohibitive arbitration costs.

In the case of Houston AN USA, LLC d/b/a AutoNation USA Houston v. Walter Shattenkirk, the Texas Supreme Court reversed the judgment finding the arbitration agreement unconscionable. It returned the case to the appellate court to address the issue of whether the manager signed the agreement.

“A court may not nullify an otherwise valid agreement to arbitrate based on purely speculative assumptions about the burdens of compelling arbitration,” wrote Justice Debra Lehrmann for the Supreme Court.

The evidence provided by the manager failed to show that he would actually have to incur excessive arbitration fees that would prevent him from effectively advancing his rights through arbitration, the Supreme Court said.