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Two federal policies. One matters more.

February 4th, 2015  |  Lisa Milam

By Lisa Milam-Perez, J.D.

“It is declared to be the policy of the United States to eliminate the causes of certain substantial obstructions to the free flow of commerce and to mitigate and eliminate these obstructions when they have occurred by encouraging the practice and procedure of collective bargaining.” So goes the preamble to the National Labor Relations Act, NLRA Sec. 1, enacted in 1935. The statute’s stated purpose: to restore “equality of bargaining power between employers and employees.”

I can’t help but wonder what the labor landscape might look like were we to hold this statement of legislative purpose in the sacrosanct esteem with which we’ve endowed the stated national policy in favor of arbitration, as embodied in the Federal Arbitration Act. If our regard for the sanctity of contracts applied to pension plans and retiree healthcare as staunchly as to mandatory “agreements” to arbitrate (individually, of course) all claims arising from employment.

“The inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract, and employers who are organized in the corporate or other forms of ownership association substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and between industries.”

I can’t help but wonder what the employment landscape might look like were workers’ “actual liberty of contract” on equal footing with the oft-stated “strong policy in favor of enforcing arbitration agreements.” Would national restaurant chains impose restrictive covenants on front-line sandwich makers? Would a dairy farm sue to enforce the noncompete agreement of a bovine inseminator who couldn’t read or write English? Would a judge shrug his shoulders and rubber-stamp a one-sided contract between a janitor and a national corporation as just “a fact of modern life”?

The latter happened recently in Sanchez v CleanNet USA Inc.. In that decision, a janitor “franchisee” of a nationwide commercial cleaning company was forced to individually arbitrate his claims that he was improperly classified as an independent contractor (and thus deprived of wages due) and fraudulently induced into signing on to a franchise agreement. It’s the latest ruling in a string of cases in which “franchisee” janitors are challenging the label, which deprives them of the benefit of wage laws and other statutory employment protections.

The janitor in this case, a Spanish speaker with a limited education, purchased a franchise “package” of $2,500 in monthly billing for $11,800. He paid with $6,000 of his own (borrowed) money, and the remainder through a $5,800 loan from CleanNet at 9 percent interest. At a meeting to finalize the deal, he met with a Spanish-speaking company rep to discuss its terms in Spanish, then initialed every page of a 41-page franchise agreement, written in English, and signed a statement affirming that he read and understood its terms. The agreement was offered on a take it-or-leave-it basis and contained a dispute resolution provision of which he allegedly was not informed in the meeting. Nor was he advised that the franchise agreement limited his remedies (waiving punitive and consequential damages, loss of profits, and attorneys’ fees and costs) while leaving CleanNet’s available remedies fully intact.

The federal court balked at the notion that CleanNet’s franchise agreement was a procedurally unconscionable contract of adhesion. It said the failure to translate every provision into the plaintiff’s native tongue did not render the deal unenforceable, as CleanNet “had no obligation to explain every single term in Spanish.” And while the contract’s remedial limitations didn’t pass muster—they ran directly counter to the mandates of the Illinois Franchise Disclosure Act and were necessarily void and unenforceable—the court said the problematic terms could easily be severed, citing the “strong policy in favor of enforcing arbitration agreements,” and the adage that this policy is best served by lopping off unenforceable terms to salvage the valid ones. Such is the case, apparently, even when the drafter included the provisions despite having reason to know they were unenforceable.

A contract’s a contract, though, or what remains of it. And arbitration reigns supreme. So the franchise agreement’s arbitration provision was even held to apply to the cleaning company’s parent entity—a nonsignatory. Equitable principles precluded the janitor from escaping arbitration of his claims against the national cleaning corporation, a sympathetic court held.

I can’t help but wonder who the NLRA’s drafters had in mind when they wrote of the unequal bargaining power of those lacking “actual liberty of contract.” If not folks like our hamstrung janitor, then who?