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Arbitration clause can be enforced

But judge says it’s ‘close’ call

A mandatory arbitration provision in an employment agreement was enforceable even though it drastically shortened the employee’s limitation period for bringing a claim while incorporating outside terms that the employer could change unilaterally, a Superior Court judge in Massachusetts has ruled.

The employee argued that the provision should be deemed void for unconscionability.

But Judge Thomas A. Connors disagreed.

“The question here the court regards as a close one,” Connors wrote. “[But] the court takes into account that the Supreme Judicial Court when it rejected a challenge to an arbitration agreement based upon unconscionability grounds [in its 2007 Miller v. Cotter decision] specifically cited as a consideration that arbitration of disputes is ‘heavily favored by statute and case law.’”

Despite reservations concerning particular aspects of the agreement in question, Connors said the “agreement to arbitrate here is not one which admits to avoidance on grounds of unconscionability.”

The 10-page decision is Joule, Inc., et al. v. Simmons.

Big ol’ hole?

Herbert L. Holtz of Holtz & Reed in Boston, who represented the employer, said the decision sends a strong message that arbitration agreements are useful, desirable and enforceable.

“The plaintiffs’ bar had hopes and aspirations that unconscionability would be the proverbial big hole through which they were going to drive a big ol’ truck,” Holtz said. “They hoped it, they said it and they tried it. And what happened was that, in this case, the truck blew up, even where there are elements of a contract that render it a ‘close call.’”

The takeaway for the bar is that as long as an agreement is clear on its face, gives employees informed consent and a fair opportunity to understand what they are signing, and does not unfairly “move the goal lines,” it will be enforced, said Holtz, who was not involved in drafting the agreement in Joule.

Nevertheless, Holtz said, lawyers should be careful when drafting such agreements to avoid unduly disproportionate provisions weighted against an employee.

“Make sure there isn’t some extraordinary change to the scaffolding of Chapter 151B, such as eliminating basic compensation elements of [the statute],” he said. “[Shortening the limitations period to 30 days, like the agreement in this case,] won’t defeat it, and that’s pretty dramatic. But an agreement that says you can’t get back wages or attorneys’ fees when the statute says you can, or mandates it, is when you’ll run up on the rocks of unconscionability.”

Plaintiff’s counsel Barbara A. Robb of Shilepsky, Hartley, Robb, Casey, Michon in Boston said she does not believe the ruling will have as dramatic an impact as Holtz suggested.

“The fact that the judge said it was a close call may draw some attention, but beyond that, unconscionability decisions are always case by case,” she said.

Robb also pointed out that Connors decided the case on remand from the SJC, which also ruled that the suit could still proceed before the Massachusetts Commission Against Discrimination, where it initially was filed.

“The SJC’s decision allows employees, but not employers, a second bite at the apple [in arbitration],” she said. “And in our case, that’s something that the employer would have to pay for.”

Robert S. Mantell of Rodgers, Powers & Schwartz in Boston, who submitted an amicus brief on behalf of the Massachusetts Employment Lawyers Association when the case was before the SJC, called the ruling “a disappointing and disturbing dilution of the civil rights protections afforded by Massachusetts law,” particularly given that the agreement reduced the statute of limitations for workplace discrimination claims by 90 percent.

“While a presumption of arbitrability governs controversies over the scope of coverage of an arbitration provision, employee-side lawyers should fight application of the presumption to the examination of ordinary contract defenses,” he said. “Those defenses should be equally available to contracts with or without arbitration provisions.”

Mantell also contended that requiring an employee to sign away, as a condition of employment, the right to a judicial forum for Chapter 151B claims violates Section 4(4A) of the statute, which forbids interference with 151B rights. He suggested that plaintiffs’ lawyers attack such provisions on those grounds.

“This becomes more attractive … given that the defense of unconscionability seems to have become less available,” he said.

Discrimination action

In April 2008, defendant Joule, Inc., a staffing company headquartered in New Jersey, hired plaintiff Randi Simmons to manage its Boston branch office. According to Simmons, Joule asked her to sign a pre-employment contract containing a mandatory arbitration provision, but only after she was hired and had turned down another job offer.

The provision mandated that any discrimination claims against the company would be resolved by binding arbitration through either the American Arbitration Association or the Judicial Arbitration and Mediation Service.

Additionally, the provision established a 30-day limitations period for filing any claims, enabled the arbitrator to limit discovery, and required any arbitration proceedings to take place at the employer’s office.

Meanwhile, certain provisions relating to the arbitration process were not set forth in the agreement; instead, they were contained in other documents that were subject to unilateral change by Joule.

Simmons, who was pregnant at the time she was hired, alleged that she was subjected to a hostile work environment and denied a promotion and salary increase because of the employer’s biases against pregnant women and against women with children.

On July 30, 2009, following Simmons’ complaints about the issue to the director of the Boston office, Joule terminated her employment.

A month later, she filed an MCAD complaint alleging discrimination on the basis of sex and pregnancy in violation of Chapter 151B

Joule responded with a lawsuit in Superior Court to enforce the arbitration agreement. Judge Paul E. Troy denied its motion to compel arbitration and stayed all proceedings pending the outcome of the MCAD proceeding.

On appeal, the SJC found that MCAD had the right under Chapter 151B to conduct its own independent proceeding on the discrimination complaint, but with the MCAD itself as complainant and the plaintiff as a possible witness.

The SJC also held, however, that the employer could compel arbitration of its dispute with Simmons if a court determined that the arbitration provision was valid.

Accordingly, it remanded the case back to Superior Court for such a determination, where Joule renewed its motion to compel arbitration

A ‘close call’

Addressing the plaintiff’s contention that the arbitration agreement was unconscionable and thus unenforceable, Connors acknowledged that the agreement itself presented problems of interpretation and application.

He also noted that the agreement set a very strict 30-day time limit for filing claims, which “drastically reduces” the three-year limitation period for court actions brought under 151B, and that procedural rules relating to arbitration, including the provision that contained the time limit, were set out in a separate document that was incorporated by reference and which Joule could modify on its own at any time.

That gave the court pause, Connors said.

On the other hand, the plaintiff presented no allegation that the employer actually amended any of those terms between the time she signed the agreement and the time of the dispute, the judge said.

Ultimately, Connors determined that the question was a “close one,” but concluded that given the high bar for establishing unconscionability and the commonwealth’s strong policy favoring arbitration, the provision was enforceable.

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