Unconscionable Arbitration Clauses: Be Careful What You Include

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Many employers lawfully require all employees, as a condition of employment, to arbitrate any disputes arising out of the employment relationship. Typically, such arbitration agreements include claims for wrongful termination, discrimination or harassment, wage and hour violations and the like, but they exclude workers’ compensation claims. By definition, the arbitration agreement forces the employees to give up a jury trial, although in many cases the employer agrees to pay the full cost of the arbitration. More recently, employers have added a clause by which employees waive the right to sue collectively in a class action, a controversial provision that will be the subject of a future post.

Can an employee who has been forced to agree to arbitrate claims ever get out of that agreement and bring an action in court before a judge and jury? The answer is yes, in the limited circumstance that a court holds the arbitration agreement to be unconscionable. What does that unwieldy word mean? It means simply that a court has determined that a contract is so overly harsh or one-sided that it cannot be enforced. Courts look to both procedural unconscionability—how the contract was formed—and substantive unconscionability—the actual terms of the contract—to determine if it should be enforced.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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