Beware the Arbitration Agreement

I remember the excitement that comes with getting the offer letter on that job you really wanted. You can leave that dead-end job you are in, start making some real money and start enjoying life again. Yeah, the Employment Agreement includes an Arbitration Clause. And it’s kinda weird but the Arbitration Clause says the case has to be arbitrated on the other side of the country, but no worries. You aren’t going to have any legal issues with your employer right? Wrong.

I recently represented a nice young man who landed a gig at a large Chicago real estate company. Unbeknownst to him, one of the managers he would be interacting with had an anger management problem. After a particularly hostile outburst where the manager loudly criticized my client’s productivity(in a large meeting with co-workers) my client discreetly asked the manager to refrain from such public criticism. That just made matters worse. The manager then aggressively approached my client and there was some physical contact. My client immediately extracted himself, notified HR and then notified the Police. Days later, my client was fired. The client contacted my firm and asked me to help. I asked him if he had a written employment agreement and he showed it to me. The dreaded Arbitration Clause was there on page 10. I informed him that the Arbitration Clause was clearly written and broad – and likely spelled trouble. But I agreed to file the case and fight the Arbitration Clause. So we filed, bracing for the inevitable Motion to Compel arbitration. And weeks later, as anticipated, I received the Motion to Transfer the compel arbitration.

As a general rule, if you are trying to skirt out from under an arbitration clause in an employment agreement – you are up against it. First, Courts favor arbitration as an alternative to litigation as arbitration is typically faster, more informal and cheaper. Secondly, courts view arbitration clauses as contracts. So when Courts are called upon to determine if an arbitration clause is enforceable, the analysis involves the application of principles governing the formation of contracts. And while there are mechanisms to void a contract, it is an uphill battle. One of the frequent attacks against arbitrations clauses is that they are “unconscionable” – either procedurally or substantively. But convincing a judge the arbitration clause is unconscionable isn’t easy. To show procedural unconscionability the employee typically has to show the employer basically snuck the clause by the employee – by burying the clause deep in the agreement and hiding it behind confusing legalese. But employers have caught on and now take pains to place arbitration clauses in oversize, bold font and in very plain language. My client’s employer had done precisely that – so the procedural unconscionability argument was futile.

Employees can also argue “substantive” unconscionability – which is asserting the actual terms of the agreement are so one sided and oppressive for the employee that fairness dictates the clause be set aside. While there are some Illinois decisions voiding arbitration agreements as oppressive, they are rare, and usually involve ridiculously one-sided terms that are clearly unfair on their face. The terms my client faced were not unfair or oppressive. So he wasn’t going to get any relief with substantive unconscionability either.

Another attack employees frequently use focuses on the scope of the arbitration clause. This argument essentially recognizes there was an arbitration agreement in place, but the dispute in question falls outside that agreement. In my case, my argument was that while my client did agree to arbitrate certain terms of his agreement(such as hours and rate of pay), he did not agree to arbitrate a wrongful retaliatory termination after reporting a physical attack to the police. Scope arguments however, are very dependent on the breadth of the language in the arbitration clause. And, most employers use really broad phrasing, i.e. “any dispute over this agreement or employee’s employment”. My client’s employer certainly did and the Court, while sympathetic, ruled that my client had indeed agreed to arbitrate his firing.

So, what can be done, when looking down the barrel of an arbitration clause? First, ask yourself – do you really want to work for an employer who insists you waive your right to a jury trial and that you agree to arbitrate important legal rights at some far flung location several states away? Maybe not. There are other jobs out there.

If you insist on taking the job, at the very least, request time to review the agreement with an employment lawyer. The lawyer may suggest striking the arbitration clause, or requesting that certain causes of action(like wrongful termination or retaliatory discharge) be specifically excluded. While most employers likely won’t be agreeable, it doesn’t hurt to ask.

Bottom line: when you see that Arbitration Clause, proceed with caution.