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The Federal Arbitration Act (FAA) allows courts to compel arbitration where the parties are bound by a valid agreement to arbitrate. In particular, 9 U.S.C.S. § 4 provides that a party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction for an order compelling arbitration as provided for in the agreement. When faced with a motion to compel arbitration, the court analyzes two gateway issues only. First, the court must determine whether a valid agreement to arbitrate exists between the parties. This inquiry is not confined to defects in contract formation, but also includes such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C.S. § 2. Where the court concludes there is an enforceable arbitration provision, the court next asks whether the specific dispute falls within the substantive scope of that agreement.
Plaintiff filed a complaint against her employer, alleging six causes of action, including three federal statutory claims for disparate treatment on the basis of gender, age, and retaliation for engaging in protected activity. Plaintiff's three remaining claims were asserted under North Carolina law and include: a statutory claim for violation of the North Carolina Wage and Hour Act, N.C. Gen. Stat. § 95-25.1 et seq., as well as common law claims for fraud and negligent misrepresentation. Defendant filed a motion, arguing that plaintiff’s employment contract obligated her to submit all of her claims to arbitration in California, where defendant was headquartered. According to the defendant, the plaintiff’s employment contract required all but a select few disputes arising between the parties be submitted to and decided by an arbitrator. Plaintiff opposed the motion on the ground that the arbitration provision was unconscionable because: (i) it lacked mutuality; (ii) it required the parties to share equally the cost of arbitration; and (iii) it impeded her ability to pursue fully her various claims against defendant.
Was the arbitration provision in question enforceable and valid, notwithstanding its alleged unconscionability?
The court held that the unconscionable clause in the employment agreement allowing the employer to arbitrate claims related to the employee's undertakings and the unconscionable clause compelling the employee to arbitrate in California were not preempted by the FAA, and were collateral to the main purpose of the arbitration provision; in light of the liberal federal policy favoring arbitration agreements, both clauses fairly could be excised from the arbitration provision without altering its fundamental character. The court further averred that the unconscionable clauses were not evidence of an "insidious pattern" of unconscionable or objectionable clauses; the arbitration provision did not evidence the employer's intent to limit unfairly the employee's ability to pursue claims against it. Accordingly, the employer's motion to dismiss was granted because the arbitration provision was enforceable and valid.