KEY POINTS:
Here's a novel way to settle a dispute ...
American Apparel faced a sexual harassment claim by a former female employee, directed at the firm's owner, Dov Charney (who according to this blog by the Wall Street Journal , likes to wear underwear
round the office, or walk around naked except for a sock covering his genitals).
The parties reached an agreement that American Apparel would pay the employee US $1.3m. In return, she agreed that the dispute would go before an arbitrator, who would be selected by the company and told what to decide. The wording of the "decision" was even agreed between the parties in advance, and stated that she had not been sexually harassed and therefore had no claim. The agreement stated that American Apparel could then issue a press release claiming victory.
According to American Apparel, the former employee's lawyer told the Company on the eve of the scheduled trial that her allegations were "bogus". The Company says that it agreed to the arbitration scheme on the basis that it believed the result would reflect this concession.
Unfortunately for the parties, the deal unravelled. There was a dispute about whether the employee and her lawyer actually had to attend the fake arbitration - they refused, saying that the wording of the agreement did not require them to do so. The arbitrator the company had lined up then refused to proceed with the arbitration, and the company refused to pay.
The company then sought a court order that the dispute about the terms of the deal also be arbitrated (as provided by the wording of the agreement). The Californian Court of Appeal granted the order, noting that it was not being asked to order the sham arbitration to proceed - only to order the parties to attend arbitration concerning their dispute about the wording of the agreement - and if it had been asked to order the sham arbitration to proceed, its decision would have been "materially different". The Court observed that the press release was after all designed to mislead journalists and the public.
So, we have an agreement that provided for a fake hearing, a fake victory for the employer, and a dishonest press release - in exchange for a payment of $1.3m.
Staggering stuff ...
Greg Cain
Greg Cain is an employment lawyer at Minter Ellison Rudd Watts.