Friday, October 3, 2014


Arbitration is getting to be almost the default provision in many business contracts.  By signing an arbitration agreement, a party gives up their rights to have the court address their grievance and the same is submitted to an arbitrator often chosen and paid for by the opposing party.   Unfortunately, these provisions are almost always enforceable.  There is some legislation in Congress looking to limit arbitration.  The Mississippi Supreme Court decided Smith v. Express Check located here yesterday.  This case has the most one-sided arbitration contract I am aware of.  Smith was fired for reporting illegal conduct.  She had signed an arbitration agreement prior to being employed with Express Check.  The trial court and the Mississippi Supreme Court found the agreement enforceable and that all claims had to be submitted to arbitration.  There was a three judge dissent in the case who believed this contract was so one-sided that it should not be enforced.  A relevant portion of the dissent is below which shows how one-sided the contract was. 

"¶34.  The contract at issue is unquestionably a contract of adhesion.  It was a preprinted
form drafted by a business, or presumably, by its lawyers, and was presented to Smith on a
take-it-or-leave-it basis to sign if she wanted a job.   Furthermore, unemployment rates were
high, Smith’s testimony was that the highest level of education she completed was high
school, and the evidence indicates that she is not a worker with any specialized skills.  It is
certainly reasonable to assume that a disparity in bargaining power exists between the parties,
with Express Check holding the advantage.  It is also reasonable to assume that market
factors, i.e., difficulty finding another job, prevented Smith from contracting with another
party or employer.  See Entergy Miss., 726 So. 2d at 1207 (where no evidence was put forth
regarding the comparative business savvy of the contracting parties, “it is reasonable to
assume that a large company such as Entergy holds the advantage in that respect”).  While
the trial court found that Smith “was not obligated to sign the contract as she could have
refused and sought employment elsewhere,” this finding has utterly no basis in the record.
While she could have ostensibly “sought employment elsewhere,” there is no evidence as to
how difficult obtaining such employment might have been or how much such employment
might have paid, as compared to Express Check.  Such considerations are certainly relevant
to a determination of unconscionability, and the trial court clearly did not consider them, but
rather made an unsupported finding. 

¶35. In addition to being a contract of adhesion, the contract at issue allows Express Check
to pursue judicial remedies in the form of injunctive relief for Smith’s breach of the contract
and further mandates that she pay attorneys’ fees and costs if Express Check has to enforce
any of the provisions of the agreement.  Smith is entirely relegated to arbitration for any and
all breaches of the contract, and nothing provides that she may recover attorneys’ fees and
costs for her attempts to enforce the contract.  A similar provision was deemed substantively
unconscionable in Pitts v. Watkins, 905 So. 2d 553, 555-56 (Miss. 2005).  In that case, an
inspection agreement allowed the inspector to go to court, but only to recover fee payment,
while other claims were relegated to arbitration.  Pitts, 905 So. 2d at 556.  It also allowed him
to recover administration costs, attorneys’ fees, and costs of litigation, while the other party
was relegated solely to arbitration for any breach of the contract.  Id.  The Court found that,
because the arbitration provision allowed the inspector limited judicial remedies while
relegating the other party entirely to arbitration, the arbitration clause was “clearly one-sided,
oppressive, and therefore, substantively unconscionable.”  Id."

This is why arbitration needs to be limited.

No comments:

Post a Comment