Now that we have (finally!) gotten to the section of the
textbook where the courts aren’t upholding every single arbitration agreement
for the purposes of furthering the judiciary’s pro-arbitration policy, I was
curious to see what other employment arbitration agreements have been
overturned by the courts based on the principles advanced in Hooters of America v. Phillips. In that
case, the arbitration “agreement” promulgated by the company was found to
violate Hooters’ duty towards its employees because of its completely unfair
conditions that basically guaranteed that the company would win (or if it
didn’t win, could easily get out of arbitration and go to the court, while the
employee could not). Here are two of the other judicially-overturned arbitration
clauses that I found:
- · In Penn v. Ryan’s Family Steakhouses, Inc. (95 F.Supp.2d 940), the arbitration clause provided three categories of individuals and stated that the panel would be comprised of one person from each of the categories, all of which were administered by Employment Dispute Services, Inc. The categories were:
(a) Supervisors or managers of an
employer signatory to [EDS] Agreements;
(b) Non-exempt employees (non-exempt as defined by the
Federal Wage and Hour law) who are signatory to [EDS] Agreements;
(c) Attorneys, retired judges, or other competent
professional persons not associated with either party.
Because
the employer was a “repeat player” in using EDS’ services, the court found that
EDS had an incentive to load the lists with people who would side with Ryan’s.
Such an incentive made this section of the agreement just as unfair as the one
in Hooter’s.
- · In Murray v. United Food and Commercial Worker’s International Union (289 F.3d 297), once again, the Fourth Circuit Court of Appeals found that the method for choosing arbitrators as per the agreement signed by the plaintiff was unconscionable and made the clause unenforceable. Here, the clause stated:
“A single
arbitrator shall be chosen by the alternate strike method from a list of
arbitrators provided by the [Local 400] President's office. Such arbitrator
shall not have the authority to alter[,] change or diminish any power, right or
authority granted to the President
or Acting President of Local 400 under the terms and conditions of the Bylaws
of Local 400.”
Though there’s nothing wrong with the “alternate strike method” of selecting arbitrators, the court here took issue with the fact that the initial list of arbitrators was totally generated by the Union, making it impossible for Murray to have a fair outcome through the arbitration process
Though there’s nothing wrong with the “alternate strike method” of selecting arbitrators, the court here took issue with the fact that the initial list of arbitrators was totally generated by the Union, making it impossible for Murray to have a fair outcome through the arbitration process
Out
of brevity, I won’t post more cases, but it seems as though many employment
contracts feature this one-sided arbitrator selection process, which the courts
refuse to uphold in most cases. Reading all of these decisions closely, it’s
interesting to see how the courts carefully skirt around the boundaries of precedent
established by some of the earlier cases we’ve looked at. In the end, I find it
kind of heartening to know that courts will still protect the “little guy”
against really biased arbitration clauses.
I was definitely under the impression from our other readings that the court rarely, if ever, ruled against arbitration even in blatantly unfair situations because of the federal policy favoring arbitration and the fact that the parties agreed to the form of dispute resolution. I was also heartened by the realization that this is not necessarily the case. Especially in contracts that use an arbitration provider, the "little guy" has certain protections that I was not aware of until this reading.
ReplyDeleteCompletely agree. I was starting to understand the reasoning behin upholding most arbitration agreements, but it was good to read that the court will strike down a clause that is inherently unfair to one side. That had me a little worried for a while
ReplyDeleteGreat post Meera. I wasn't terribly excited about the cases in the textbook, as they way they were presented made them seem so absurd that the courts essentially had to provide some relief to the "little guy." These cases, however, seem to offer some real protection, and provide a nice reassurance that courts are actually grappling with these issues.
ReplyDeleteIf courts, which had been so pro-arb before, are coming around to insist on fairness, it makes you wonder when the legislature will get it together and pass acts like the AFA. Without statutes limiting the power of the FAA, I can see a potential return to a status quo if the employers just tweak the arbitration agreements a little bit and avoid some of the more blatantly unfair provisions...while still retaining many of the advantages. I think we have to place a good chunk of the responsibility for fixing the problems on the legislature (as Prof. Bayer was pleading), since caselaw can be overturned/manipulated much easier than can clearly written legislation (as long as it isn't unconstitutional).
ReplyDeleteI suppose in these cases the bias is so obvious that even the courts have to recognize it-- and do something about it. There is something about agreeing to waive certain rights (like a jury trial), and then there is something about agreeing to a process that is inherently unfair. I think a bright enough distinction exists between the two, and this is a nice limit the courts have made to ensure equity.
ReplyDeleteI agree that the arbitrations in these cases shouldn't stand, but is unconscionability doctrine the way to do it? Awards in these cases are subject to challenge for the "evident partiality or corruption" of the arbitrators in Section 10 of the FAA. The procedures in these cases seem severe enough to satisfy even the Fifth Circuit's evident-partiality standard of "concrete, not speculative impression of bias." See Positive Software at CB 669. The cases you mention seem to go beyond even evident partiality to the FAA's inclusion of "corruption."
ReplyDeleteBut the broader point is that courts should look to the vacatur and modification tools within the FAA before leaping to unconscionability doctrine.