New York Appellate Division Refuses to Enforce Portion of Employee Arbitration Agreement

Dividing 3-2, New York's Appellate Division, 1st Department, has refused to enforce as "violative of public policy" an agreed-upon provision requiring parties to an arbitration to split the costs.

The ruling in Brady v. Williams Capital, 114198/06, allows a saleswoman who was fired after six years at an investment bank to take her discrimination claims to arbitration without having to front the cost of compensating the arbitrator.

Lorraine C. Brady, who sold fixed-income securities at Williams Capital Group, filed for arbitration after she was fired in 2005, claiming sex discrimination in violation of state and federal law.

In 2000, Williams Capital required all of its employees, including Brady, to agree to the terms outlined in an employee manual as a condition of continued employment. The terms provided that all disputes between the bank and its workers had to be taken to arbitration and that the two sides must share evenly the fees charged by the arbitrator.

After three months of prehearing discovery, the arbitrator, who had been selected by the American Arbitration Association, submitted a bill for $42,300.

Brady refused to pay her share, contending that enforcement of the fee-splitting provision was void as against public policy because she was financially unable to meet the "prohibitive" cost of the arbitration.

Williams Capital, relying on the fee-splitting provision, refused to shoulder the entire cost with the result that the American Arbitration Association put the arbitration on hold. Five months later it "cancelled" the proceeding.

Brady then filed suit in Manhattan Supreme Court to force Williams Capital to pay all the costs and kickstart the arbitration.

Brady contended she was unable to shoulder her $21,150 share because she had been unemployed since her firing 18 months earlier.

The trial judge, Supreme Court Justice Nicholas Figueroa, dismissed her suit, finding she had the wherewithal to pay her half of the fee. Brady had been paid a total of $609,500 in the two years before her termination.

The appellate panel, looking to applicable federal law, reversed. It found that Brady had established that her finances were "precarious" and that requiring her to pay for the arbitrator "effectively precluded her from vindicating her rights" in the arbitration.