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Arbitration Clauses in Employment Applications may be Unfair in Certain Circumstances



By Max Nuyen

A subsequent case from the U.S. Court of Appeals for the Ninth Circuit proves resistance is not futile, and arbitration agreements can be successfully challenged under the right circumstances. The employee in this case applied for a job at a well established grocery chain. She signed and submitted an employment application stating that by completing the application, the employee agreed to be bound by the grocery chain’s arbitration policy. Although the policy was not actually provided to the employee until her orientation, the application contained an acknowledgment the terms of the mandatory and binding arbitration policy had been provided for the applicant’s review.

The arbitration policy itself contained a convoluted arbitrator selection mechanism which practically guaranteed the party not requesting arbitration would always have the arbitrator of its choosing. Certain well respected arbitration forums were excluded outright. Another paragraph permitted the grocery chain to unilaterally modify the policy without notice to the employee, with the employee’s continued employment constituting acceptance of the modifications. Finally, the parties were required to divide the arbitration fees regardless of the merits of the case.

Six months after the employee began working for the grocery chain, she left her employment under contentious circumstances. She then sued the grocery chain, alleging violations of California’s labor laws. The grocery chain moved to dismiss the case and to compel arbitration based on the terms of the arbitration policy. The grocery chain argued its arbitration policy was binding and controlling because the employee agreed to it when she applied for employment.

The employee argued the arbitration agreement was unenforceable because it was created under unfair circumstances. The Ninth Circuit Court of Appeals agreed with the employee for all the reasons she set forth below.

First, the circumstances under which the contract was entered were oppressive because there was no real negotiation involved. The arbitration policy was presented as a “take it or leave it” proposition. If the employee did not accept its terms, she would not be permitted to work.

Second, the terms of the arbitration policy were not provided to the employee when she first signed the employment application. Instead, the policy was given to her several weeks after the document had already been submitted. In this respect, the employee had no opportunity to assess its terms, let alone negotiate it. The grocery store’s employment application bound the employee to later provided terms, something most courts frown upon.

Third, the arbitrator selection clause of the policy seemed to unfairly favor the grocery chain because it virtually guaranteed the grocery chain would get the arbitrator it wanted. Last, the employee argued the arbitration policy lacked any semblance of fairness because it prevented the employee from seeking redress for harm by requiring her to pay for arbitration fees regardless of the merits of her case. Therefore, the court found the arbitration policy as referenced by the employment application was not enforceable.


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