Mandatory Employment Arbitration Clauses: Clearing the Hurdles, Part II

Welcome back! Let’s continue our discussion of clearing the hurdles to writing enforceable arbitration clauses in employment agreements. We have thus far established that under the FAA, arbitration clauses/agreements must provide employees an effective mechanism for asserting and maintaining any rights they would have under federal statutes. (Again, most if not all states have their own additional laws and requirements regarding mandatory employment arbitration clauses, so if you are an employer, you need to look at applicable laws in all states in which they have employees.) We now also know that the terms themselves must be fair to the employee, or they will be substantively unconscionable, and may be stricken down by a court. What are some of the other hurdles?

     Third Hurdle: The manner in which arbitration agreements or clauses are made must be fair to the employee. If the process by which an employer gets an employee to agree to arbitrate disputes is oppressive and unfair to the employee, then it is what we call procedurally unconscionable. Whereas, substantive unconscionability focuses on fairness of the terms themselves, procedural unconscionability focuses on the fairness of the process by which the employer secured the employee’s consent. What factors do courts examine to determine if an arbitration clause/agreement is procedurally unconscionable? Age, education, intelligence, business acumen, experience and relative bargaining power of the parties are some factors. Conspicuousness and comprehensibility of the language, presence or absence of meaningful choice are other factors a court considers. As you can see the analysis will be very fact sensitive.

Let’s look at some real-life court analyses of procedural unconscionability.