Which Arbitration Agreement Clauses Will Texas Courts Find Unconscionable?

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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In recent years, courts have consistently supported employers’ use of arbitration agreements in employment settings. During the last few terms, the Supreme Court of the United States has issued several decisions, such as American Express Company v. Italian Colors Restaurant (2013) and AT&T Mobility, LLC v. Concepion (2011), upholding the use of arbitration agreements. Texas courts have also issued decisions, such as In re Halliburton Co. (2002), upholding the use of such agreements.

While courts generally enforce arbitration agreements, they sometimes refuse to do so when an arbitration agreement includes provisions considered unconscionable under the law. A recent decision out of El Paso County identified some clauses that courts might consider unconscionable. In the decision, which involved the enforceability of an arbitration agreement between an employer and a part-time dishwasher, the court focused on the fact that the employer had drafted the agreement and that the employee had had no ability to negotiate terms related to it. The court further observed that the employer had made representations in the agreement that arbitration had the advantage of being less formal, quicker, and less expensive. The court considered these representations to have been lies because the employer could not support them with evidence.

The court also characterized the payment by the employer of arbitration fees as a way of buying out of the court system and into a justice system that the employer controlled by paying the arbitrators. The court criticized the forum selection clause, which required arbitration to occur in a location 500 miles from where the employee worked. The court ultimately determined that these provisions were unconscionable and ruled that the agreement was unenforceable. The case is currently on appeal.

The validity of the court’s analysis can be debated. Nevertheless, since the purpose of an arbitration agreement is to move the dispute into the arbitral forum as inexpensively and expeditiously as possible, this decision provides guidance on which arbitration agreement provisions employers might want to avoid in order to move their matters to arbitration expeditiously.

First, an agreement should not “puff” or make representations about how wonderful the arbitration process is. These representations are not required in order to have a valid arbitration agreement. Moreover, the representations may even offend the court, which, as seen in the instant case, might consider them to be misrepresentations related to the formation of the arbitration agreement, making the clause unconscionable.

Second, employers should avoid erecting barriers to their employees’ ability to invoke the arbitration process. There should be very few hurdles impairing employees from initiating the arbitration process. While imposing filing fees similar to the cost of a party filing a lawsuit are appropriate, travel requirements inherent in forum selection clauses should be weighed carefully to ensure that a reviewing court will not consider the forum selection to somehow unreasonably restrict an employee’s ability to initiate and prosecute a claim in arbitration. The Texas Constitution contains an “Open Courts” provision which essentially prohibits any material barriers to litigating claims in state courts. Therefore, any provision infringing on an individual’s ability to easily pursue a claim in arbitration could provide a hostile trial court with cause to find the agreement unconscionable.

- See more at: http://blog.ogletreedeakins.com/which-arbitration-agreement-clauses-will-texas-courts-find-unconscionable/#sthash.BtyacGcR.dpuf

In recent years, courts have consistently supported employers’ use of arbitration agreements in employment settings. During the last few terms, the Supreme Court of the United States has issued several decisions, such as American Express Company v. Italian Colors Restaurant (2013) and AT&T Mobility, LLC v. Concepion (2011), upholding the use of arbitration agreements. Texas courts have also issued decisions, such as In re Halliburton Co. (2002), upholding the use of such agreements.

While courts generally enforce arbitration agreements, they sometimes refuse to do so when an arbitration agreement includes provisions considered unconscionable under the law. A recent decision out of El Paso County identified some clauses that courts might consider unconscionable. In the decision, which involved the enforceability of an arbitration agreement between an employer and a part-time dishwasher, the court focused on the fact that the employer had drafted the agreement and that the employee had had no ability to negotiate terms related to it. The court further observed that the employer had made representations in the agreement that arbitration had the advantage of being less formal, quicker, and less expensive. The court considered these representations to have been lies because the employer could not support them with evidence.

The court also characterized the payment by the employer of arbitration fees as a way of buying out of the court system and into a justice system that the employer controlled by paying the arbitrators. The court criticized the forum selection clause, which required arbitration to occur in a location 500 miles from where the employee worked. The court ultimately determined that these provisions were unconscionable and ruled that the agreement was unenforceable. The case is currently on appeal.

The validity of the court’s analysis can be debated. Nevertheless, since the purpose of an arbitration agreement is to move the dispute into the arbitral forum as inexpensively and expeditiously as possible, this decision provides guidance on which arbitration agreement provisions employers might want to avoid in order to move their matters to arbitration expeditiously.

First, an agreement should not “puff” or make representations about how wonderful the arbitration process is. These representations are not required in order to have a valid arbitration agreement. Moreover, the representations may even offend the court, which, as seen in the instant case, might consider them to be misrepresentations related to the formation of the arbitration agreement, making the clause unconscionable.

Second, employers should avoid erecting barriers to their employees’ ability to invoke the arbitration process. There should be very few hurdles impairing employees from initiating the arbitration process. While imposing filing fees similar to the cost of a party filing a lawsuit are appropriate, travel requirements inherent in forum selection clauses should be weighed carefully to ensure that a reviewing court will not consider the forum selection to somehow unreasonably restrict an employee’s ability to initiate and prosecute a claim in arbitration. The Texas Constitution contains an “Open Courts” provision which essentially prohibits any material barriers to litigating claims in state courts. Therefore, any provision infringing on an individual’s ability to easily pursue a claim in arbitration could provide a hostile trial court with cause to find the agreement unconscionable.

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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