Ohio Court Rules Mandatory Employment Arbitration Agreement is Unconscionable and Unenforceable

May 11, 2015

Employers’ requirement of mandatory arbitration of disputes as a condition of employment is growing. The general perception is that arbitration is quicker, cheaper, and more effective than litigation.  Many employers also would prefer to submit these disputes to an arbitrator instead of a jury. 

Ohio and Federal law generally favor arbitration when the parties agree to it.  Indeed, the Federal Arbitration Act (FAA) preempts state statutory laws which preclude or limit arbitration involving interstate commerce.  However, a recent Ohio Court of Appeals decision, Arnold v. Burger King, et al., 2015 – Ohio – 1639, shows that the preemption by the FAA can be avoided by applying common law contractual law. 

In Arnold, plaintiff alleged that she was raped at work by her supervisor and brought a lawsuit against her employer and the supervisor.  The employer filed a motion to force plaintiff to arbitrate the case pursuant to an arbitration agreement that plaintiff signed as a condition of employment.  The Trial Court denied the employer’s motion without opinion and the employer appealed the decision asserting there was a valid binding arbitration agreement and the FAA preempted any state law defenses against the arbitration. 

The Court of Appeals agreed with the Trial Court and found that the arbitration agreement was unconscionable and therefore void under Ohio common law contract revocation principles and not preempted by the FAA.  The Court held that an arbitration agreement is unconscionable under Ohio law if it is both procedurally unconscionable and substantively unconscionable.  The Court of Appeals determined the agreement was procedurally unconscionable based on a number of facts.  Most notably, the Court suggested that any arbitration agreement which is mandatory and non-negotiable is procedurally unconscionable. 

The Court then proceeded to hold that the agreement was also substantively unconscionable because it provided for arbitration of virtually any and all claims an employee might have against the employer or any of its agents, including claims unrelated to employment.  Without further elaboration, the Court of Appeals concluded that such a broad agreement was substantively unconscionable and, therefore, the entire arbitration agreement was void pursuant to the Ohio common law for revocation of contracts. 

The holding in this case presents some challenges to employers with arbitration agreements.  First, most, if not all, employers who have arbitration agreements require employees to agree to them as a condition of employment.  Second, most employers desire to have a broad arbitration provision to ensure disputes will go to arbitration rather than court.  While employers could limit the scope of their arbitration agreements to employment disputes and perhaps avoid the result of this case, it is not difficult for a plaintiff to articulate claims arising in the employment setting as non-employment claims which would not be subject to arbitration. 

It will be important for employers to continue to monitor the effectiveness of arbitration agreements since attacks on mandatory employment arbitration agreements will continue in both the courts and legislatures.

 

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