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Unconscionable Arbitration Agreements Are Unenforceable

Over the past few years, the Supreme Court has consistently reaffirmed the Federal Arbitration Act's policy in favor of arbitration. Many moons ago, we blogged about why, more often than not, arbitration is bad for employees. Not surprisingly, employers are requiring their employees to sign arbitration agreements, and thus requiring workers to submit all claims of discrimination, unpaid wages, and other employment disputes to an arbitrator and not a jury. While there are many potential defenses to arbitration agreements available to an individual seeking to bust an arbitration agreement, the most often litigated defense is likely that of unconscionability.

What is Unconscionability? Because arbitration agreements are treated like any other contract, when determining whether or not an arbitration agreement is valid, courts apply state contract law. See In re Poly America, L.P., 262 S.W.3d 337, 347 (Tex. 2008). The Texas Civil Practice and Remedies Code states, "A court may not enforce an agreement to arbitrate if the court finds the agreement was unconscionable at the time the agreement was made." Tex. Civ. Prac. & Rem. Code ยง 171.022. While there is no set definition for the term, unconscionability generally means the contract is so one-sided that it should not be enforced. Id. at 348. Unconscionability can consist of either procedural unconscionability or substantive unconscionability. See In re Palm Harbor Homes, Inc. 195 S.W.3d 672, 676 (Tex. 2006). Procedural Unconscionability Procedural unconscionability refers to the circumstances surrounding the adoption of the arbitration agreement. Id. at 677. For the most part, this includes things such as unequal bargaining power, fine print, confusing terminology, or the inability of one party to understand the agreement. Substantive Unconscionability Substantive Unconscionability refers to the overall fairness of the agreement. Id. Substantive unconscionability can comprise many factors, including, but not limited to: Limiting Otherwise Available Statutory Remedies - If an arbitration agreement acts to waive an employee's substantive statutory rights and remedies and thus precludes an employee from vindicating her rights, the agreement is unenforceable. In re Poly America, 262 S.W.3d at 351-52. The Cost of Arbitration - Often, arbitration agreements will state the employee and employer will split the cost of arbitration. If the employee is able to show the cost of arbitration will prohibit her from fully and effectively vindicating her rights, the provision will not be enforceable. Id. at 356. Limiting Available Discovery - If an arbitration agreement places limits upon the types of discovery available to the employee (i.e., only one deposition allowed, prohibitions upon the use of requests for admission, etc.), the Texas Supreme Court has stated such restrictions are unenforceable if they unreasonably impede the effective prosecution of unwaivable rights. Id. at 357-58 These are but a few ways an arbitration agreement may be found to be unenforceable under Texas law. Some U.S. Senators have recognized the inherent unfairness of arbitration agreements and have sought to enact the Arbitration Fairness Act, which, if passed and signed into law, would prohibit the enforceability of arbitration agreements covering employment, consumer, and civil rights disputes.  Until then, consult an attorney Board Certified in Labor & Employment Law if you're faced with an arbitration agreement in the future. - AWR

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