A former Circuit City retail associate is entitled to a jury trial in a dispute against his former employer despite having signed an agreement to resolve all employment-related claims through arbitration, the Ninth Circuit Court of Appeals ruled recently. In Al-Safin v. Circuit City Stores, Inc., the Ninth Circuit upheld the invalidation of an arbitration agreement, explaining that it was overwhelmingly biased in favor of the employer and unconscionable under Washington law.
All non-unionized Circuit City employees were required to sign the arbitration agreement as a condition of employment. This decision has no effect on arbitration provisions in collective bargaining agreements. Specifically, the court found seven provisions offensive:
- the employee was bound to arbitrate his or her claims, but the employer was not similarly bound;
- the employee's potential monetary recovery was significantly limited;
- the employee was required to pay the employer a "filing fee" before bringing a claim to arbitration;
- the employee would be presumed to split the costs of the arbitration equally with the employer;
- the employee was prohibited from involvement in bringing a class-action suit;
- the employee was subject to a one-year statute of limitations; and
- the employer could unilaterally modify the agreement.
Additionally, the court found that the employer's use of a severability clause did not save the agreement. Finding the agreement "permeated with unconscionable provisions," the court invalidated the entire arbitration agreement.
What does this mean for employers?
Employee arbitration agreements are by no means dead in Washington. As the Ninth Circuit explains, they are simply agreements governed by the law of contracts. As long as employers take care to avoid the unconscionable elements highlighted in Al-Safin, the agreements are likely to be enforced. There appear to be three trouble spots that employers should avoid when drafting arbitration agreements:
1. Avoid drafting provisions that attempt to reduce the relief available to the employee. The Ninth Circuit has repeatedly rejected employers' attempts to include provisions that purport to limit an employee's potential monetary recovery or cut short the statute of limitations. The court has reasoned that the choice of arbitration as a forum should not undercut the substantive rights that would otherwise be available to an employee in the courts.
2. Avoid "pay to play" provisions that tend to chill an employee's exercise of his or her arbitration rights. The Ninth Circuit has routinely disfavored terms that force an employee to pay the employer a "filing fee" for the right to bring a claim to arbitration, or terms that attempt to split the costly fees of arbitration between an employee and employer.
3. Limit provisions that obviously and unfairly benefit the employer exclusively. In both Al-Safin and similar cases decided under California law, the Ninth Circuit has pointed out that arbitration agreements are unconscionable when the employee is required to arbitrate his or her dispute but the employer is not similarly bound. Also, the court has expressed its disapproval of provisions that allow an employer to unilaterally modify the arbitration clause, especially to the extent that the employer attempts to change the ground rules after the employee's claim has arisen.
In addition, employers can no longer count on a severability provision to solve problems created by unconscionable terms. On the other hand, the court hinted that as long as the unconscionable terms are "discrete," severability provisions may allow the employer to enforce the arbitration agreement, absent the offending terms.
The bottom line is this: arbitration clauses are still enforceable, but employers must be mindful that Washington law disfavors those arbitration clauses that limit an employee's relief to less than would be available through the courts, force employees to pay for the opportunity to arbitrate, or seemingly confer benefit exclusively on the employer. Those employers desiring to arbitrate all disputes with employees should take care to steer clear of unconscionable terms that will land them in front of a jury despite their best attempts to avoid that risk.
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