Tuesday, January 28, 2020

Ohio appellate court refuses to enforce employment arbitration agreement as “unconscionable”

An agreement between an employer and its employees requires an employee to submit to “final and binding arbitration … any actual or alleged claim or liability, regardless of its nature” (other than claims for unemployment or workers’ compensation, or for violations of the National Labor Relations Act).

An employee sues in court for race discrimination and retaliation, and the employer moves the court to compel the employee to arbitration his claims pursuant to their agreement.

In Thomas v. Hyundai of Bedford [pdf], the Ohio Court of Appeals refused to compel the employee to arbitrate his claims, concluding that the arbitration agreement he signed was “unconscionable.”

The court began its discussion by noting that for an arbitration agreement to be unconscionable, it must be both substantively unconscionable (unfairness or unreasonableness in its terms) and procedurally unconscionable (a lack of a “meaningful choice” by one party to reach an agreement, attributable to the other having such superior bargaining power). The court concluded that the at-issue arbitration agreement met both prongs, as the agreement required the employee, as a condition of employment, to arbitrate any claims he might have against the employer (and not just employment-related claims).

What can we learn from this case? If you favor arbitration as a venue to litigate claims with your employees (and I do not), avoid agreements that require an employee to arbitrate any and all claims, and limit your agreements to employment-related claims. Otherwise, you risk a finding of unconscionability and unenforceability.

More fundamentally, this case illustrates how arbitration agreements can run counter to the goal they are trying to achieve—streamlining litigation and saving expenses. In the Thomas case, the arbitration agreement significantly added to the cost of litigation by inserting an appeal into the case before the parties ever reached the substantive merits of the employment claims.

* Photo by Chris Liverani on Unsplash