Law360: Cost-Splitting Arbitration Clauses Threaten Workers’ Rights

Our Hugh Baran writes in Law360 about how provisions that require employees to bear half the costs of arbitration effectively block employees from pursuing their claims in arbitration at all. The original story is available here and the text is below.

Expert Analysis – Rebuttal

Cost-Splitting Arbitration Clauses Threaten Workers’ Rights

By Hugh Baran ·  Listen to article

Law360 (December 19, 2022, 6:48 PM EST)

For years, champions of employer-mandated forced arbitration programs have extolled arbitration’s supposed benefits for workers as well as employers. Arbitration, they have said, is more efficient, and can be just as good for worker plaintiffs with statutory wage theft or discrimination claims as judges and juries can be.

But now attorneys who extol arbitration’s supposed benefits are proposing measures that would effectively block employees from using either courts or arbitration to resolve their claims, as employer attorney Christopher Deubert did in an October Law360 guest article.

Cost-splitting provisions impose huge costs on workers if they attempt to enforce their rights.

Deubert’s article frames his advice to employers as a simple guide to enforcing cost-splitting employment arbitration provisions against employees who would bring claims. Acknowledging the default rule, “that the employer pay[s] the full cost of the arbitration,” the article suggests that employers can craft arbitration provisions that “require employees to split the costs of the arbitration,” helping “save the employer considerable sums in the event of a dispute while also providing financial leverage in the arbitration.”

His proposals include: employer-inserted language that says the employee agrees they have the ability to pay, as well as that the arbitration provision overrides any conflict with American Arbitration Association or JAMS Inc. rules.

He also suggests that the arbitration provision be sent as an editable Word document instead of a PDF, and to avoid explicitly saying or implying that the provision is “take it or leave it.”

Such advice may seem anodyne, but as the article observes, “arbitrations generally cost tens of thousands of dollars for the arbitrator’s time and the services of the arbitration administrator.”

What he has laid out, then, is a road map for employers that would unscrupulously shift half of these tens of thousands of dollars onto individual workers bringing statutory claims for wage theft, employment discrimination and other employment law violations.

This shifting of costs in reality acts as a bar to workers asserting their claims, a risk that the U.S. Supreme Court has acknowledged, noting in its 2000 ruling in Green Tree Financial Corp.-Alabama v. Randolph that “it may well be that the existence of large arbitration costs could preclude a litigant … from effectively vindicating her federal statutory rights in the arbitral forum.”[1]

Cost-splitting provisions are designed to prevent workers from pursuing claims at all.

The consequences of adopting the advice in the article, with the resultant increased cost for workers bringing claims, would be especially severe for low-paid workers — particularly Black, Latinx and other workers of color, and immigrants disproportionately represented in low-paying jobs.

Forced arbitration and class action waivers are already deterring many workers and their attorneys from ever pursuing claims in the first place. As New York University law professor Cynthia Estlund has documented, faced with the reality of proceeding alone against their employer in a stacked forum where employers are the repeat players, 98% of workers whose claims are subject to forced arbitration abandon or never bring their claims.[2]

But what the article proposes would erect an even further barrier for those few employees who do try to vindicate their rights through arbitration: requiring employees to pay thousands, or even tens of thousands of dollars, just to file and arbitrate a claim.

In most cases, such costs would subsume part or all of the eventual recovery. What rational employee is going to take those kinds of chances?

This is the impact of adopting these kinds of cost-splitting provisions. They do not create an efficient alternative forum for employees, but instead shield employers from accountability, allowing them to continue their practices unchallenged.

While the article suggests that “cost-splitting is generally only going to be available in employment or arbitration agreements with executives or other highly paid employees,” there’s no reason employers wouldn’t also try to follow his recommendations to impose cost-splitting provisions on lower- and middle-income workers.

The fact is, they are already trying to impose cost-splitting provisions on these workers, as I know from my own practice.

It’s also not just the lowest-paid workers who cannot afford arbitration costs. After all, 56% of Americans are unable to cover an unexpected $1,000 expense from their savings.[3]

Current legal and arbitral remedies are insufficient or inconsistently enforced.

Unfortunately, the Supreme Court has allowed cost-splitting provisions like the ones the article recommends to multiply, as employers seek to shield themselves from any employee claims against them.

In Green Tree, the court said that the plaintiff, a consumer who attempted to sue over violations of the Truth in Lending Act and the Equal Credit Opportunity Act connected to the purchase of her mobile home, had failed to meet her burden, because the risk that she would be “saddled with prohibitive [arbitration] costs [was] … too speculative to justify the invalidation of an arbitration agreement.”[4]

But the court gave no guidance to lower courts on how to assess the likelihood that high costs would occur. In the wake of Green Tree, many courts — though not all — have concluded that plaintiffs have to make highly detailed showings both as to the likelihood of incurring high arbitration costs in their particular proceeding and their inability to pay.[5]

So even though it is common knowledge and well acknowledged by employer-side lawyers, including Deubert, that arbitration typically costs “tens of thousands of dollars” — and that most employees cannot afford to pay such costs — many courts have dismissed employee fears of incurring such costs as unfounded or insufficiently supported.[6]

In the rare cases in which courts find plaintiffs have successfully made such a showing, their typical remedy simply will be to sever the cost-splitting provision.[7] In other words, businesses will still get the benefit of the arbitration provision.

As U.S. District Judge Vincent Chhabria recently explained in the U.S. District Court for the Northern District of California case Hale v. Brinker International Inc., when courts “excise [cost-splitting] provisions and enforce arbitration agreements anyway,” employers “have no incentive not to chill claims by including cost-shifting provisions in arbitration agreements.”[8]

Judge Chhabria thus declined to sever the provision and save the unconscionable arbitration provision, instead denying the employer’s motion to compel; his decision is currently on appeal.[9]

Some might argue that fears of the negative fallout from cost-splitting provisions are overblown because the AAA and JAMS — the two biggest arbitration providers — would not enforce cost-splitting provisions in employment cases under their policies. But arbitration providers and arbitrators’ behavior has been inconsistent in this area.

While the AAA employment rules provide that arbitration costs are to be borne by employers, the advice in Deubert’s article contemplates that arbitrators can and will override these suggestions.

Moreover, even if arbitrators, or the AAA and JAMS themselves, started to consistently deny enforcement of cost-splitting provisions in individual cases, how would workers ever learn of these decisions, which are not public?

Such decisions thus would not override the chilling effect of these provisions, which will deter individual workers from ever bringing their claims in arbitration.

A Warning for Employers

Employers and their attorneys should nevertheless approach the advice in the article with extreme caution — although as readers can tell, I’m not in the business of advising employers.

First, some of the ideas in the article — such as the suggestion that employers send the arbitration provision as a Word document and “invite the employee’s edits” — are transparently insufficient to negate the power dynamic when most employees are presented with their employment paperwork, and will be unlikely to fool courts taking a serious look at the issue.

Most employees, apart from the very highest paid, do not have the technical or legal training to assess the implications of all the legalese that employers pack into employment contracts — if they even are given the time and space to read and review them at all. They also lack speedy access to attorneys to review those contracts, as well as the ability to pay those attorneys.

Most employees know that they do not have any true power to negotiate the standard conditions of employment, and the measures the article suggests would not fundamentally change this.

Put another way, arbitration requirements simply do not arise out of negotiations where the parties are on equal footing. A new employee who does not want to accept a forced arbitration provision almost surely does not have a real choice: Either they accept, or they give up their new job and start looking for new work. And most new employees in those situations are not given the opportunity to engage in any negotiation over an agreement that they likely do not even understand.

Courts are well aware of these dynamics, they have just been constrained in how they approach them because of the Supreme Court’s Federal Arbitration Act jurisprudence. Courts are not likely to be taken in by sending a forced arbitration provision as a Word document.

Second, cost-splitting provisions in forced arbitration provisions, and the employers who use them, are drawing increasing scrutiny from public regulators — who as the Supreme Court has recognized are not parties to forced arbitration provisions and thus not bound to them.

In a 2019 letter to the AAA, the attorneys general of 11 states and the District of Columbia made multiple information requests about the use of cost-splitting provisions, expressing concern such provisions would “discourage workers in our States from proceeding through the arbitration process by imposing significant costs.”[10]

And in 2021 the Office of the Solicitor of the U.S. Department of Labor has made clear that it “prioritizes its pursuit of cases where employees do not have other avenues of relief when they are forced to arbitrate claims against their employers out of court.”[11]

Using cost-splitting provisions that erect an even further barrier to workers pursuing their claims is thus even more likely to draw attention from the DOL and state enforcers. Employers who seek to use these provisions to block employees’ ability to redress workplace violations, both in court and in arbitration, are thus likely opening themselves up to increased public enforcement actions.

Longer term, increased use of cost-splitting provisions may well encourage bolder action from state legislatures, and ultimately Congress. Disgust with the use of forced arbitration in sexual harassment and assault cases led to bipartisan action, letting victims pursue these claims before judges and juries.

If employers adopt cost-splitting provisions in droves, such that arbitration provisions totally block workers from pursuing their claims, it could well pave the way for Congress to finally pass the Forced Arbitration Injustice Repeal Act — or other significant reforms to the FAA — and end forced arbitration as we know it.

Hugh Baran is an attorney at Kakalec Law PLLC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Green Tree Fin. Corp.-Ala. v. Ranolph , 531 U.S. 79, 90 (2000).

[2] Cynthia Estlund,The Black Hole of Mandatory Arbitration, 96 N.C. L. Rev. 679, 696 (2018),

[3] Carmen Reinicke, 56% of Americans can’t cover a $1,000 emergency expense with savings, CNBC (Jan. 19, 2022),

[4] Green Tree, 531 U.S. at 91.

[5] See, e.g., Bradford v. Rockwell Semiconductor Sys., Inc ., 238 F.3d 549, 556 (4th Cir. 2001) (holding the inquiry when confronting cost-splitting provisions must involve “a case-by-case analysis that focuses, among other things, upon the claimant’s ability to pay the arbitration fees and costs, the expected cost differential between arbitration and litigation in court, and whether that cost differential is so substantial as to deter the bringing of claim”); Zambrano v. Strategic Delivery Solutions, LLC , No. 15-cv-8410 (ER), 2016 WL 5339552, at * n.15 (S.D.N.Y. Sept. 22, 2016) (finding “most courts” follow Bradford’s test); but see, e.g., Morrison v. Circuit City Stores, Inc.,  317 F.3d 646, 663–665 (6th Cir. 2003) (holding that courts should look at “whether the terms of the arbitration agreement itself would deter a substantial number of similarly situated employees from bringing their claims in the arbitral forum,” and should thus look at “average or typical arbitration costs,” rejecting Bradford’s requirement that the plaintiff “come forward with concrete estimates of anticipated or expected arbitration costs.”).

[6] See, e.g., Stewart v. Paul, Hastings, Janofsky & Walker, LLP , 201 F. Supp. 2d 291, 293–94 (S.D.N.Y. 2002); Reynolds v. de Silva, 2010 WL 743510, at *6–7 (S.D.N.Y. Feb. 24, 2010), abrogated on other grounds, Katz v. Cellco P’ship , 794 F.3d 341 (2d Cir. 2015); Whitlow v. Crescent Consulting, LLC , No. CIV-16-1330-R, 2018 WL 1915083, at *2 (W.D. Okla. Apr. 23, 2018); Omnitech Instit., Inc. v. Norwood , 360 Ga. App. 272, 275–76 (Ga. Ct. App. 2021); Mariglio v. Berthel Fisher & Co. Fin. Servs., Inc ., 19 N.Y.S.3d 653, 653–54 (N.Y. App. Div., 4th Dep’t 2015).

[7] See, e.g., Crespo v. Kapnisis , No. 21-cv-6963 (BMC), 2022 WL 2916033, at *5–6 (E.D.N.Y. July 25, 2022) (finding cost-splitting provision unenforceable as plaintiff met burden of showing that arbitration costs would likely be substantial, but finding that the correct remedy was to sever the provision and compel arbitration); Balderas v. 8 Chelsea Corp ., 18-CV-11149 (VEC), 2019 WL 3429500, at *3–4 (S.D.N.Y. July 29, 2019) (same).

[8] Hale v. Brinker Int’l, Inc. , No. 21-cv-9978-VC, 2022 WL 2187397, at *1 (N.D. Cal. June 17, 2022).

[9] Id.; appeal filed, No 22-16045 (9th Cir. July 19, 2022).

[10] D.C. Attorney General Karl Racine et al., Letter to Ann Lesser, AAA re: Request for Information Regarding Arbitration of Employment-Related Claims (Nov. 12, 2019),

[11] Off. of the Solicitor, U.S. Dep’t of Lab., Court Affirms US Department of Labor’s Independent Authority to Recover Unpaid Wages, Damages in Court for Employees Who Signed Private Arbitration Agreements (Press Release) (Sept. 23, 2021),

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