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Arbitration Agreement

Posted By Kenneth S. Grossbart — Law Offices of Abdulaziz, Grossbart & Rudman, Monday, January 22, 2018

We have written before regarding the concept of arbitration vs. litigation.  Arbitrating disputes is very common and arbitration clauses are found in all types of different situations.  Arbitration clauses are very common in construction related contracts as well as employment related contracts.  Arbitration is favored by the courts and if there is an arbitration clause contained in a contract, the court more often than not will enforce the arbitration clause and require that the parties arbitrate their disputes as oppose to litigating their disputes in the court system. 

A recent California Appellate[1] case addresses the validity of an arbitration clause that was contained in an employment agreement.  Maya Baxter was employed by AssetMark Investment Services, Inc.  Genworth North acquired AssetMark.  Genworth required that Ms. Baxter sign an arbitration agreement.  The arbitration agreement required that all employment disputes be resolved according to Genworth Alternative Dispute Resolution guidelines.  At a later date, Genworth eliminated Ms. Baxter job position and as a result terminated her employment.  Ms. Baxter sued Genworth for wrongful termination alleging Genworth fired her because of her race.  Genworth filed a motion to compel arbitration pursuant to the arbitration clause contained within the employment contract however the court denied Genworth’s motion on the grounds that the arbitration agreement was procedurally and substantively unconscionable. 

As mentioned above, the greater percentages of motions to compel arbitration are granted and thus compel the parties to arbitrate their disputes.  It is a rare situation that a trial court denies a motion to compel arbitration.  However in this instance that is exactly what the court did. 

In denying Genworth’s motion to compel arbitration, the trial court found that Ms. Baxter did not have the power to bargain with Genworth over the terms of the arbitration agreement.  As a result, the trial court found that unconscionability was present in the negotiation of the arbitration clause.  The court further found that the provisions of the arbitration clause were unfairly one sided in favor of Genworth.  By way of example Ms. Baxter was not allowed to communicate with other employees about her claims.  Baxter was also restricted on discovery, shortened limitation periods and limited Baxter’s ability to seek administrative remedies prior to participating in arbitration. 

Because the trial court found that the arbitration clause was both procedurally and substantively unconscionable, the court ruled that the arbitration clause is unenforceable and Ms. Baxter can pursue her disputes in the court system. 

Although arbitration is a favored means of dispute resolution, there are instances where arbitration clauses will not be held to be unenforceable.  Where the facts of this particular case are in the realm of employer/employee, the situation can be equally construed in any type of industry such as the construction industry. 

Whether you are the maker of the contract or the one asked to sign someone else’s contract, pay particular attention to the arbitration clause and make sure that the clause does not unfairly favor one person over the other. 

[1] The holding of this case would no doubt be the same in other States.

Tags:  LEGAL 

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