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Well, we only have two weeks left in the semester in my employment law class at Penn State. Frankly, I'm disappointed in myself for not blogging more about the interesting cases and issues we're covering in class. I'm covering arbitration today, including a fairly recent Third Circuit opinion on the enforcement of employment arbitration agreements. 2-Step Analysis In Nino v. The Jewelry Exchange, 609 F.3d 191 (3d Cir. 2010), the Court held that an employment arbitration agreement was unconscionable and therefore unenforceable [an enhanced version of this opinion is available to lexis.com subscribers]. Analyzing unconscionability requires a two-step analysis:
The Procedural Component
"We have consistently found that adhesion contracts-that is, contracts prepared by the party with greater bargaining power and presented to the other party 'for signature on a take-it-or-leave-it basis'-satisfy the procedural element of the unconscionability analysis." This is a pretty low hurdle, and likely covers many employment arbitration agreements. Unless the employee is a professional negotiating a full contract, I suspect most employment arbitration agreements meet this standard. The Substantive Component "[A] party challenging a contract on unconscionability grounds must also show that the contract is substantively unconscionable by demonstrating that the contract contains 'terms unreasonably favorable to the stronger party.'" The Court found several of the clauses in the arbitration agreement at issue in Nino objectionable:
Finally, the Court analyzed whether the substantively unconscionable provisions could be severed from the agreement such that the Court could compel arbitration minus the bad parts. The analysis involves two "separate and independent" bases for declining to enforce the agreement as a whole:
The first of these is whether the unconscionable aspects “of the employment arbitration agreement constitute [ ] ‘an essential part of the agreed exchange’ of promises” between the parties. If the unconscionable aspects of the clause do not comprise an essential aspect of the arbitration agreement as a whole, then the unconscionable provisions may be severed and the remainder of the arbitration agreement enforced . . . .
The second consideration for the question of severability . . . is whether the unconscionability of the arbitration clause demonstrates “a systematic effort to impose arbitration on an employee, not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage.”
(internal citations omitted). The Court concluded that the agreement was so "pervasively one-sided" that it could not sever the unconscionable provisions, and therefore the entire agreement was effectively unenforceable.
Read additional employment law articles on Philip Miles’ blog, Lawffice Space.
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