California Strikes Down An Employee’s Agreement to Arbitrate on Substantive ‎Unconscionability Grounds (As “One-Sided”)‎

One of the most important trends in the relationship between employers and employees is the proliferation of mandatory arbitration clauses in the employment contract.  In particular, we’ve noted that once an employment contract contains an agreement to arbitrate, courts frequently send non-contractual claims to the arbitration forum as well under the theory that such claims “arise out of” the employment agreement.

Because arbitration is generally perceived as being employer-friendly – although we’ve cautioned employers that isn’t always the case – employee plaintiffs are on the lookout for ways to convince a court that their arbitration clauses should not apply.

One approach is for the employee to argue that the employer has waived his or her right to arbitrate because the employer has “acted inconsistently” with the right to arbitrate claims.  We looked at the legal basis for this argument (as well as indulged in some trash TV) in a two-part series just a few months ago.  (Part one, Part two)

Another approach is for plaintiffs to challenge the clause as unfair.  The argument goes something like this:  for many employees – although typically not executives – the employment contract is presented on a “take it or leave it” basis; that is, it is a contract of adhesion over which the employee has little to no ability to negotiate particular provisions.  Accordingly, if an arbitration provision is drastically unfair to the employee, the court can strike it down under the doctrine of “unconscionability,” which permits a court to throw out a contractual provision that is so one-sided as to be “unusually harsh and shocking to the conscience.”

The latter approach is vividly illustrated by a recent California appellate decision, Compton v. American Management Services. Read More ›

Take A Close Look At That Employee Handbook...At Least In D.C.

Before you read this, go ahead and open your desk drawer.  Look beyond what may be some rather odd contents, and the fact that those contents may speak volumes about you.

Dig down and find the employee handbook that’s likely buried in there.  There’s a good chance you got this on your first day of work, put in in the drawer, and haven’t looked at it since.  But move those ketchup packets aside and pull it out, because the question for today is: does that book form a contract between you and your employer (or you and your employees, if you’re the owner of the business)? Read More ›

Sometimes, It Pays To Be A Bad Sport: California Court Finds That Employee Who Deceived Her Employer About Having Signed An Arbitration Agreement Cannot Be Compelled To Arbitrate

We have written previously about litigants’ attempts to compel arbitration under a theory of “equitable estoppel.”  For example, last July we discussed the move by Silicon Valley venture capital firm Kleiner Perkins to force its former partner, Ellen Pao, to arbitrate their sexual harassment dispute on the theory that, despite the absence of an agreement to arbitrate between the parties, it would be inequitable to allow Pao to avoid arbitration.  Although the trial court rejected this argument, Kleiner Perkins appealed and is awaiting a decision.

Since then, the issue of equitable estoppel has cropped up again in the California courts.  Just last week, in a decision that may have ramifications for Pao and Kleiner Perkins, the California Supreme Court declined to review (subscription required) a decision by a California appeals court affirming the denial of The Sports Club Company’s motion to compel arbitration against its former employee, Susan Gorlach. Read More ›

Montana Supreme Court Sends Employee On Arbitration Expedition

This week, our search for intriguing precedent has taken us all the way to the County of Lewis and Clark, Montana, and the case of Shannon Marsden. 

Marsden, an employee of Blue Cross Blue Shield Montana (“BCBSMT”), had an employment agreement with a clause that required arbitration of any dispute arising under it.  The agreement was for a two-year term, but provided that Marsden could be fired if the president of the company “believed that it would be in the best interest of BCBSMT.”

After BCBSMT terminated Marsden’s employment, she brought a claim under Montana’s Wrongful Discharge from Employment Act (“WDEA”), alleging that she was fired because she reported illegal rebates of insurance commissions. 

However, Marsden’s claim came with a catch. Read More ›

Legal Lessons From the World of Reality TV: Waiving A Contractual Right To ‎Arbitrate An Employment Dispute (Part 2 Of 2)‎

In our last installment, we described a dispute between CBS, on the one hand, and three former producers of the CBS show Big Brother, on the other, in which the former producers argued that CBS had waived its contractual right to arbitrate by spending months pursuing litigation against the former producers before demanding arbitration.  Because many employment contracts have mandatory arbitration clauses, the possibility of waiver must be on the radar screens of parties to an employment dispute.  We discussed the flipside of this issue, arbitration by estoppel, in July.

The threshold question is whether the party seeking arbitration acted inconsistently with the right to arbitrate. Read More ›

Legal Lessons from the World of Reality TV: Waiving a Contractual Right to Arbitrate an Employment Dispute (Part 1 of 2)

Reality TV is a guilty pleasure for some - not us at Suits by Suits, mind you, as we prefer to focus our attention on the more pressing legal questions of our time.  Reality TV is also a highly competitive industry and fertile ground for lawsuits between companies and star employees with lessons for all of us about employment contracts.  In our last episode, MSNBC and the former host of My Big Obnoxious Fiance taught us about repudiating contracts.  In this episode, CBS and three former producers of Big Brother  teach us about waiving a contractual right to arbitrate an employment dispute.

The three former Big Brother producers - Corie Henson, Kenny Rosen and Michael O’Sullivan – eventually wound up working on the production of ABC’s The Glass House, which CBS has called a blatant rip-off of Big Brother, and which aired last summer.  Before it aired, in May 2012, CBS sued ABC and the three former producers in federal court in Los Angeles.  The former producers had signed non-disclosure agreements (NDAs) with CBS in connection with their work on Big Brother.   CBS sought to temporarily restrain ABC from airing the first episode of The Glass House, claiming that ABC and the former producers had violated CBS’s copyrights and misappropriated its trade secrets in the production of the show.  CBS also claimed that the former producers violated the NDAs by disclosing confidential information and trade secrets relating to technical, behind-the-scenes aspects of filming and producing Big Brother. Read More ›

Mandatory Employee Arbitration Clauses: Still A Good Deal for the Employer? How Merrill Lynch is Making Employers Think Twice

On Sept. 17, 2012, a U.S. District Court denied Merrill Lynch’s petition to vacate an arbitration panel’s award of $10.2 million to two of its former advisors, Tamara Smolchek and Meri Ramazio.  The award – split almost evenly between $5.2 million in compensatory damages for deferred compensation and $5 million in punitive damages – helps to illustrate the growing (and changing) role that arbitration plays in disputes between high-level executives and their employers.

For decades it has been conventional wisdom that employee arbitration clauses favor the employer by taking potentially sensitive cases away from a jury (because “everyone knows” that juries are “more sympathetic to employees”).  (Or, as a more employer-friendly article puts it, arbitration can reduce the likelihood of an “irrational award” because arbitrators “tend to be more conservative than juries.”)

Additionally, arbitration clauses can favor the employer where the employee is required to share in some (or all) of the costs of the arbitration by discouraging plaintiffs who would otherwise have been able to secure plaintiffs’ counsel on a contingent fee basis for a trial by jury.  (Note that courts continue to grapple with this issue, and many courts have determined that if an arbitration clause would unduly burden a plaintiff from exercising his or her legal rights, that arbitration clause is invalid and the plaintiff is free to litigate in court instead.  See, e.g., Ball v. SFX Broadcasting, Inc., 165 F. Supp. 2d 320, 238-40 (N.D.N.Y. 2001) (discussing cases).

Is this still the case?  Read on. Read More ›

A Big Bill for Biller: Whistleblowers and Confidentiality Agreements

Many of the cases we talk about here on Suits by Suits are breach of contract cases brought by executives against their former employers.  Sometimes, however, the employer turns the tables, bringing an action against a former executive for breaching its confidences.  When that happens, the executive can find himself owing the company a lot of money, rather than the other way around.

Such was the fate of a former lawyer for Toyota named Dimitrios Biller, the subject of the Ninth Circuit’s recent opinion in Biller v. Toyota Motor Corp., 668 F.3d 655 (9th Cir. 2012).   Read More ›

Claims That “Arise Out Of” An Employment Agreement: It May Be Broader (And More ‎Significant) Than You Think

Sexual discrimination claims continue to be big news in the world of suits by suits.  We’ve previously commented at some length regarding the novel issues raised in the sexual harassment lawsuit brought by former Kleiner Perkins partner Ellen Pao.

Today, we turn to a related and equally unique issue:  a sexual orientation claim brought under the auspices of the Americans With Disabilities Act, 42 U.S.C. § 1201 et seq.  Although there is no federal statute that protects employees from discrimination on the basis of sexual orientation generally, Brian Anthony Martinez, the former international managing director of television for Bloomberg Media, brought a lawsuit against his former employer in 2011, alleging that he was terminated after Bloomberg discovered that he had undergone therapy for domestic abuse from his male partner, thus (arguably) bringing his claims under the ADA. Read More ›

The Inbox

• Bill Singer, writing in Forbes, discusses one potential consequence for financial industry employees who arbitrate employment disputes with former employers: future employers can see them as willing to fight these disputes and this negative branding can harm chances of employment.
• Evan J. Shenkman, in a piece posted on Lexology, discusses an interesting New Jersey case involving an alcoholic nurse who also had anxiety problems: when she was terminated for not showing up to work, the employer suggested she was being fired for both alcoholism and lack of attendance – and that, therefore, a jury could have concluded she was wrongfully terminated for her alcoholism (attendance is generally a valid reason for termination, the court held).
• This article doesn’t deal with United States law (our usual focus here on Suits by Suits), but in a ‎tip of our beret to our friends in Britain hosting the Olympics, here’s an article that those with an ‎interest in UK employment law might like: Charlotte Lloyd-Jones discusses a recent case there ‎where employees were fired for “gross misconduct on the basis that they were preparing to ‎compete with their employer,” as a breach of an employment contract. The appellate tribunal ‎held that just because the employees might compete in the future didn’t supply a basis for firing ‎them in the present. It also held that the employees have to drive on the left.‎
• And, from the nightmares of the near future department: should employees post on Facebook ‎while they’re in termination meetings with their employers? And if they do, what should ‎employers do about it? It’s already happened, in a case involving an American Airlines ‎employee. Daniel Schwarz has some interesting commentary on this issue here. Welcome to the ‎future!‎