Arbitration and Mediation
Arbitration Clauses in Employment Agreements
Many companies are now including binding arbitration clauses in their employment contracts.
If you are required to sign the contract prior to employment and you are required to pay for a portion of the costs of arbitration, the arbitration provision may be deemed invalid.
Cooper v. MRM Investment Co.
Facts
The plaintiff, Mrs. Cooper, was a former employee of a fast food franchisee and brought suit against franchisee for sexual harassment and constructive discharge, in violation of Title VII and Tennessee Human Rights Act. Defendant then filed for a motion to dismiss or a motion to compel arbitration, for the plaintiff had signed an agreement prior to employment to arbitrate in matters involving disputes with franchisor and its "related companies and/or their current or former employees." The plaintiff then argued that the binding arbitration agreement was unconscionable and therefore invalid because plaintiff was required to sign the contract prior to employment and was required to pay for a portion of the costs of arbitration.
Rule of Law
The courts recognize that under the Federal Arbitration Act signing of arbitration clauses as a condition of employment is typically enforceable unless it (1) requires the forfeiture of a "substantial right" or "societal rights"; (2) is in violation of state contract laws; or (3) is in general deemed unconscionable.
Issue(s)
Whether an arbitration agreement can be deemed invalid on the basis of contract laws.
Holding and Reasoning
Yes. In this situation the courts found that the arbitration agreement signed by the plaintiff was an adhesion contract and was an unconscionable contract by the standards of Tennessee law. The agreement forced the plaintiff to agree upon paying for a portion of potential arbitration costs which the plaintiff could not possibly afford. Due to the portion of the agreement that rendered the plaintiff to pay for part of the arbitration costs, the entire arbitration agreement was deemed an unconscionable contract. The court dismissed defendant's request for dismissal or to compel arbitration.
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