August 7th, 2012 | Lorene Park
There is no statute requiring employers to highlight arbitration provisions in employment agreements, but court cases illustrate that doing this, as well as taking other relatively easy steps during the drafting process, could avoid costly battles over whether the agreement is enforceable. In a May 2012 decision, a California appeals court ruled that an arbitration agreement was unconscionable and unenforceable (Samaniego v Empire Today LLC). It was procedurally unconscionable because it was comprised of 11 pages of densely-worded, single-spaced text printed in small typeface; it was not flagged by headings; and employees were not required to initial individual sections. It was substantively unconscionable because it was presented on a take-it-or-leave-it basis, included a shortened six-month statute of limitations and had a unilateral fee-shifting provision requiring employees to pay the employer’s attorneys’ fees. Further, the employees were unable to read English and were denied a Spanish translation.
Likewise, in a July 2012 California decision (Nelsen v Legacy Partners Residential, Inc) the court found procedural unconscionability where an employee was given a 43-page handbook that included, in the last two pages, an arbitration agreement. The title of the acknowledgment page made no reference to the arbitration clause, which was in small font and not set off to stand out. Further, it was written in “legalese.” Similarly, a federal district court in Pennsylvania ruled that an arbitration agreement sent to potential members of a class action was misleading where it was full of legal jargon and “totally lacking” in easily understandable English (Williams v Securitas Security Serv, July 13, 2011). Also, the document was titled “Dispute Resolution Agreement,” was written in “small font,” and gave employees 30 days in which to opt out, but said that any employee who did not opt out would forfeit their right to engage in a class action.
Appearance and clarity matter – avoiding procedural unconscionability
Employers that want to avoid spending time and money trying to prove that an arbitration agreement is not unconscionable should consider taking certain steps when drafting the provision. With respect to procedural unconscionability, consider the following:
- Use 12-point font or larger; and use a bold, underlined, and capitalized heading that includes the words “Arbitration Agreement.”
- Make sure that the arbitration clause or agreement is not hidden in the text of a larger document, such as an employee handbook. It is a good idea to have the agreement in a separate document. At the very least, set the arbitration provision off in its own paragraph, with spacing between the paragraphs.
- Make it clear that it is a binding arbitration agreement and that it is binding on both the employee and employer.
- Specify what kinds of claims must be arbitrated (e.g., Title VII, the ADA, and the ADEA) but make it clear that the list is not exhaustive and make any carve out provisions clear.
- Use plain English to the extent possible, rather than legal jargon. If an employee’s first language is not English, provide a translation.
- Require signatures, including on the page with the arbitration provision. It is better to have an employee sign to agree to arbitration rather than using an opt-out agreement where the employee is deemed to agree unless he or she takes action to opt out.
- If electronic signatures are used, make sure that the employee takes an action to signify acceptance of the arbitration agreement, independent of any other agreement (such as clicking the mouse on an “I accept” button). Also, be able to prove the employee did so (e.g., require that the employee’s password be used). Ensure that technical support is available.
Also, with respect to clarity, be careful with disclaimers. An employee handbook with a disclaimer stating it is not a contract can prompt a court to preclude both the employee and employer from enforcing handbook provisions, including those requiring arbitration.
Fairness matters – avoiding substantive unconscionability
In addition, it is important to avoid the main indicators of substantive unconscionability, such as a one-sided agreement that applies to an employee’s claims against an employer but not vice versa. For example, using the phrase “claims between the employee and the company” would be better than “claims that the employee may have against the company.” Other problematic provisions include:
- fee-shifting so that an employee pays costs or the employer’s attorney’s fees;
- shortening a statute of limitations; and
- limiting remedies that are otherwise available to an employee.
In addition, the agreement should provide for a neutral arbitrator, allow discovery, and provide for a written decision by the arbitrator to allow judicial review. In terms of discovery, courts disagree on the point at which limits on discovery are unconscionable. It would be wise to refrain from limiting a party to only a few depositions and fewer than twenty interrogatories or document requests, for example.
Other steps employers can take to avoid legal battles concerning their arbitration agreements include educating employees on their legal rights and how these can be enforced through the arbitration process. Employers should implement and enforce anti-retaliation policies to protect employees who use the arbitration process. They may also want to specify that the arbitration will be conducted under the American Arbitration Association (AAA) rules. If so, a copy of the rules should be provided to employees. The AAA offers guidance on the use of arbitration agreements online at http://www.adr.org.