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Alaska Supreme Court Adopts ‘Bright-Line Rule’ that Spares Workers Substantial Arbitration Costs in Employment Actions

Alaska Supreme Court Adopts ‘Bright-Line Rule’ that Spares Workers Substantial Arbitration Costs in Employment Actions

n a victory for workers who seek to vindicate their rights under the Alaska Wage and Hour Act (AWHA), the Alaska Supreme Court held on April 3 that employers may not require their employees to arbitrate their wage and hour claims unless the employer is willing to pay all of the costs of arbitration. 

 Public Justice was co-counsel for Larry Gibson, the employee plaintiff in this appeal, along with Alaska civil rights specialist Ken Legacki of Anchorage.
 
Public Justice urged the Court to adopt a “bright-line rule” that would outlaw employers from imposing mandatory pre-dispute binding arbitration clauses where the employees would be required to pay significant arbitration costs to bring claims under the AWHA.  The Court agreed with Public Justice that a “bright-line rule” is indeed necessary in AWHA cases because “substantial forum costs would run counter” to the AWHA’s policies of deterring employers from violating the act and encouraging employees to take action to remedy violations. 
 
“The Alaska Supreme Court’s decision is an extremely important victory for employees who argue that they were denied their rights under basic wage and hour statutes,” said Paul Bland, the Public Justice staff attorney who argued the appeal in the Alaska Supreme Court.  “By recognizing a bright-line rule that employees may not be required to pay substantial arbitration costs, the Court ensures that employers will not be able to make it difficult or impossible for employees to protect their fundamental legal rights.” 
 
The plaintiff in this case, Larry Gibson, had filed suit to recover over $100,000 dollars in unpaid overtime compensation that he was owed under the AWHA.  Mr. Gibson’s former employer, Nye Frontier Ford and Nye Frontier Lincoln Mercury (Nye), had argued that Mr. Gibson was required to bring his case in arbitration, rather than in court, where he would have to pay half of the arbitration costs.
 
The Court found that the arbitration costs in this case could “easily exceed $6,000,” which was far above  the $150 court filing fee that other workers would have to pay to assert their rights under the AWHA. 
 
The Court rejected the notion that Mr. Gibson, and other workers like him who seek to bring claims under the AWHA, would have to prove on a case-by-case basis that they are unable to afford the costs of arbitration. 
 
Instead, the Court held that any contract that required a worker to pay substantial arbitration costs to bring a claim under the AWHA violated the AWHA’s policies, and was unenforceable for that reason.
 
The Court therefore concluded that “arbitration may be required under the agreement only if the employer agrees to pay the arbitration costs.” 
 
The Alaska Supreme Court’s decision is significant for another reason.  In addition to ruling that employers may not require their employees to pay substantial arbitration costs to vindicate their rights, the Court also held that another provision of Nye’s arbitration clause, which permitted appellate review of only those arbitration awards that exceeded $50,000, was unconscionable. 
 
Public Justice argued – and the Alaska Supreme Court agreed – that this $50,000 appellate review provision unreasonably favored employers because workers with claims well over $50,000 might receive either no award, or an award falling below the $50,000 threshold, and would be deprived of an appeal.  By contrast, in cases where the employer stands to lose $50,000 or more, the employer would have the right of an appeal.  The Court agreed that the provision unreasonably benefited the employer, struck this provision as unconscionable, and severed it from Nye’s arbitration clause.  
“This decision is likely to have national significance, because of the Court’s thoughtful and well-reasoned approach,” said Legacki, Gibson’s lead counsel. “For Alaska employees, this decision breaks new ground and guarantees that if employers decide to require employees to submit to arbitration, at least the employees will have a fair chance on a level playing field.”
 
The case will now return to court, unless Nye agrees to pay all of the costs of arbitrating Gibson’s case.
 
In addition to Bland and Legacki, Public Justice’s Power-Cotchett Fellow Tami Alpert did substantial work on the brief in the case.
Read the Alaska Supreme Court Decision in Gibson v. Nye Ford.