Law is very demanding subject, even for those who have a huge experience in their work. Each part of law is hard in its own way, and it would be ungrateful to say that arbitrage agreements are easy. Sometimes they are, but usually they are not.
Arbitration agreements are becoming increasingly common in the workplace. The appeal of such agreements is obvious in that arbitration can help employers limit risk and expense associated with employment litigation. Employers must be mindful, however, that merely having an arbitration provision in an employee manual does not necessarily mean that the provision is enforceable. A recent decision by a federal court in Maryland illustrates this point.
In Mould v. NJG Service case, a group of restaurant servers filed suit against their employer, The Crab Bag, for violations of the Fair Labor Standards Act (“FLSA”). The restaurant, however, claimed that at least one plaintiff signed an arbitration agreement that provided that employment related disputes were to be resolved through arbitration and sought to dismiss that employee’s claim.
The employee countered by arguing that the restaurant’s arbitration policy was both procedurally and substantively unconscionable. It was undisputed that the employee was presented with the arbitration policy on a “take-it-or-leave-it” and was told that he would be fired if he did not agree to the terms. Further, the arbitration agreement stated that agreement was “a condition of continued employment, and in exchange for One U.S. Dollar.” A real whistleblower reward, isn’t it ?
The court found the arbitration agreement invalid. Specifically, the court ruled that because the employee had no real opportunity to bargain about the terms, the arbitration agreement was procedurally unconscionable. The court also found the agreement to be substantively unconscionable in that there was “no meaningful exchange of promises to arbitrate.” Indeed, the court noted that the employer actually had the employee sign the agreement after FLSA claim arose. Under such circumstances, the court concluded that the agreement was “unreasonably favorable” to the employer and therefore invalid. The agreement was rejected immediately and without further discussion.
What are the takeaways for employers? First, to the extent you are asking an existing employee to agree to arbitration, some consideration other than continued employment is required. Such consideration can be in the form of a promotion, an increase in salary or a one-time (non-nominal) payment. Second, when drafting your arbitration agreement, be certain that the agreement mutually and equally obligates you and the employee to arbitration. Finally, as the owners of The Crab Bag learned, if an employee has an existing claim, it probably is too late to request the employee to agree to arbitration.