Welcome back! Let’s continue our discussion of clearing the hurdles to writing enforceable arbitration clauses in employment agreements. We have thus far established that under the FAA, arbitration clauses/agreements must provide employees an effective mechanism for asserting and maintaining any rights they would have under federal statutes. (Again, most if not all states have their own additional laws and requirements regarding mandatory employment arbitration clauses, so if you are an employer, you need to look at applicable laws in all states in which they have employees.) We now also know that the terms themselves must be fair to the employee, or they will be substantively unconscionable, and may be stricken down by a court. What are some of the other hurdles?
Third Hurdle: The manner in which arbitration agreements or clauses are made must be fair to the employee. If the process by which an employer gets an employee to agree to arbitrate disputes is oppressive and unfair to the employee, then it is what we call procedurally unconscionable. Whereas, substantive unconscionability focuses on fairness of the terms themselves, procedural unconscionability focuses on the fairness of the process by which the employer secured the employee’s consent. What factors do courts examine to determine if an arbitration clause/agreement is procedurally unconscionable? Age, education, intelligence, business acumen, experience and relative bargaining power of the parties are some factors. Conspicuousness and comprehensibility of the language, presence or absence of meaningful choice are other factors a court considers. As you can see the analysis will be very fact sensitive.
Let’s look at some real-life court analyses of procedural unconscionability.
In Wisdom v. Accent Care, Inc. 202 Cal.App.4th 591 (2012) the Third District Court of Appeal in California ruled that acknowledgements signed by four employees, agreeing to submit disputes to arbitration as part of their application for employment were procedurally and substantively unconscionable. The fact that the arbitration clause was part of an application held a lot of weight in this determination, along with the agreement being non-negotiable and the lack of evidence that the employees were sophisticated in legal matters. The court also found the agreement to be substantively unconscionable and therefore refused to enforce it. (California is one of a number of states that require that an arbitration agreement be both substantively and procedurally unconscionable before it will refuse to enforce it.)
By contrast, the federal Third Circuit Court of Appeals (covering NJ, PA and DE) in Zimmer v. CooperNeff Advisors, Inc. No. 05-1119, 2008 WL 1700526 (2008) upheld the arbitration provision, even though the contract included provisions reserving CooperNeff’s right to resolve certain disputes by lawsuit, including intellectual property disputes. Even though the provisions were offered to Zimmer on a “take it or leave it” basis, citing the fact that Zimmer was “highly educated” and had “multiple offers of employment” and “had simply failed to examine the terms of employment before accepting an offer and resigning from his prior employment”. Why are these factors important? Courts are sensitive to the fact that employees are often in a weaker bargaining position than employers. Courts tend to reason that the less educated, sophisticated or “sought after” the employee is, the weaker his or her bargaining position, and the more likely the provisions are procedurally unconscionable.
Fourth Hurdle: The language of the arbitration provisions must clearly state that the employee is waiving his/her right to a jury trial, and which claims are subject to arbitration. For example, if you want breach of contract claims arbitrated, that should be specified in the arbitration provision. Similarly, if you want employment discrimination claims arbitrated, then again your arbitration clause/agreement should clearly say so. Regardless of which types of claims you, the employer, want subject to binding arbitration, you must include clear, understandable language that the employee is waiving the right to a jury trial, and that the arbitrator can award the same or substantially the same relief as a judge or jury.
Fifth Hurdle: The arbitration provisions cannot preclude filing of administrative charges. Huh? What does this mean? Let’s use an example. In EEOC v. Waffle House 534 US 279 (2002), employee Eric Baker filed an EEOC charge alleging discrimination under Title I of the ADA when he was fired after having a seizure. The EEOC actually filed suit on behalf of Mr. Baker. Waffle House required all its employees to sign an agreement that all employment disputes be resolved by binding arbitration. Waffle House was sure it was in the right when it moved to stay (i.e. freeze) the lawsuit and compel arbitration. The case went all the way up to the US Supreme Court which ruled 6-3 that the agreement was in no way binding on the EEOC. In other words, nothing in the agreement changed the EEOC’s statutory enforcement functions. Since the EEOC was not a party to the contract, the agreement did not foreclose enforcement action by the EEOC, which has independent authority to sue as in any district court where venue was proper (i.e. district in the state or region where the victim lived). Therefore, an employee can still file a charge with government agencies such as the EEOC or their state counterpart. If the agency then decides to file suit, the employee may in effect participate as a complaining
Tune in next week when The Emplawyerologist explores some NLRB cases and whether and how they might limit an employer’s ability to compel employees to submit employment disputes to binding arbitration. Bye for now!
Disclaimer: The contents of this post are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
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