When properly drafted, arbitration agreements can help to efficiently and quickly resolve workplace disputes. But as a new case points out, if your agreements fall short of what courts require, you may end up in an expensive legal battle over whether the agreement is enforceable—and find that it isn’t.
Employer Requires Arbitration Agreements
When Misty Ferguson was hired by Countrywide Credit Industries, she was required to sign Countrywide’s “conditions of employment.” One condition stated that to work at Countrywide she also had to sign an arbitration agreement.
Employee Sues Despite Arbitration Provisions
Ferguson later sued Countrywide for sexual harassment. Countrywide, pointing to its arbitration agreement, asked the court to dismiss the case and send it to an arbitrator.
But now the federal Ninth Circuit Court of Appeals has refused to dismiss the lawsuit because the agreement wasn’t enforceable under California law.
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What Went Wrong
The appeals court found the agreement had the following problems:
- It was non-negotiable. Because Ferguson was in a position of unequal bargaining power and was presented with offending contract terms without an opportunity to negotiate, the agreement was unconscionable.
- It was one-sided. The agreement was one-sided in that it covered claims that Ferguson would be likely to bring against Countrywide—such as breach of contract and discrimination—but excluded claims that Countrywide would be likely to bring, including unfair competition and disclosure of trade secrets.
- Employee was required to pay costs. Requiring an employee to bear any expense beyond the usual costs of bringing a claim to court is unconscionable. The agreement required the employee to split arbitration fees after the first hearing day and to pay the entire arbitration filing fee. Note that after Ferguson was hired, Countrywide later modified the fee provisions to take full responsibility for arbitration costs. But, the court explained, this change wasn’t valid because it was sent in an e-mail and wasn’t signed by Ferguson—even though the arbitration agreement required alterations to be made in writing and signed by both the employee and an executive officer of the company.
- There was limited discovery. An arbitration agreement doesn’t have to allow the full range of discovery that’s available to an employee in court. However, this agreement’s discovery provisions appeared to favor Countrywide at the employee’s expense. For example, the agreement limited the number of subjects on which corporate representatives could be deposed but imposed no such limits on deposing employees.
Lessons Learned
If you use mandatory arbitration agreements, be sure to allow the employee time to review the agreement and recommend that they do so with an attorney. Also, be sure the agreement’s terms are not one-sided and protect both the employee’s interests and your own.