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According to a New York federal court, a $125 arbitration filing fee in an employment dispute is not cost prohibitive because it would not create a “chilling effect” on similarly situated litigants.
In EEOC v. Rappaport, Hertz, Cherson & Rosenthal, P.C., No. CV 05-3928(ADS)(ARL),2006 WL 2660981 (E.D. N.Y. Sept. 16, 2006), the EEOC and Melissa Castillo sued Castillo’s former employer, the law firm of Rappaport Hertz, for sex discrimination, retaliation, and constructive discharge.
The law firm moved to compel arbitration based on a compulsory employment arbitration agreement executed by Castillo. The agreement provided that any employment dispute must be resolved through arbitration. Castillo opposed the motion and argued that the arbitration agreement was invalid because the initial arbitration fee she would be required to pay was cost prohibitive. She estimated that her arbitration filing fee would range from $6,000 to $11,250.
In order to invalidate an arbitration agreement based on prohibitive costs, the party in favor of invalidating the agreement bears the burden of showing the likelihood of incurring prohibitively expensive arbitration costs. Rather than adopting an approach that would require examining the individual financial circumstances of Castillo, the Court used the Sixth Circuit standard, which invalidates an arbitration agreement due to prohibitive cost when “the cost of arbitration may have a ‘chilling effect’ on similarly situated litigants.”
The Court determined that any arbitration costs within the range offered by Castillo would be “prohibitively expensive” and “would deter a significant number of claimants from bringing a lawsuit regardless of their financial situation.” However, the Court’s analysis did not stop there. According to the rules governing Castillo’s agreement, disputes “arising out of an employer promulgated plan” require lower filing fees.
Castillo’s arbitration agreement with Rappaport was a employer promulgated plan, according to the Court, because it was on a preprinted form, drafted by the employer and was not individually negotiated. Accordingly, the filing fee for her dispute would be $125 rather than her original estimate. The Court determined that this fee was not cost prohibitive and granted Rappaport’s motion to compel arbitration.
While Castillo’s claims were stayed pending arbitration, the EEOC’s claims against Rappaport were not subject to arbitration. “[B]ecause the EEOC is not a party to the arbitration agreement between Castillo and Rappaport Hertz, it is not compelled to arbitrate its case.”
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