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An employer’s mandatory binding arbitration agreement with its employees is legally valid where the employer also gives up the right to file any lawsuits against the employees in court, a federal judge for the Eastern District of Pennsylvania has ruled. In his 17-page opinion in Blair v. Scott Specialty Gases, Senior U.S. District Judge Clarence C. Newcomer dismissed a sexual harassment lawsuit after finding that the arbitration agreement was a valid contract that included adequate consideration. “Because both parties have relinquished their rights to file suit in court, and have both instead agreed to arbitrate claims that arise under the agreement, the court finds that the agreement to arbitrate is supported by sufficient consideration,” Newcomer wrote. Significantly, Newcomer also found that even though the employer retained the right to modify the agreement unilaterally, it was nonetheless valid because the employer promised to put any changes in writing and to provide employees with a copy. Employees, in turn, accepted any changes by remaining employed, he found. Newcomer also rejected an argument that the arbitration clause was flawed since it requires the employee to foot half of the costs, saying there was no proof that the plaintiff could not afford it. In the suit, Diane Blair claims she was subjected to a sexually hostile work environment by a boss who referred to himself as a “sexist pig” and another male employee who spread a false rumor that she was having a lesbian affair after she complained about her boss’s sexual harassment. Attorney Martha Sperling of Silver & Sperling in Doylestown, Pa., filed the suit on behalf of Blair who was employed by SSG from 1995 until March 1999, first as a “troubleshooter” and later as a plant manager. Blair claimed that her supervisor, Thomas Barford, demeaned her suggestions at meetings and made sexist comments on a routine basis, such as suggesting that if she wanted to get things done in the factory, she should hike up her skirt and show her legs. Once, she alleged, Barford even referred to himself as a “sexist pig.” After Blair made internal complaints about Barford’s conduct, she claims, she suffered retaliation from Jerry Stump who spread a rumor that Blair and another female employee were having an affair. SSG’s lawyers, James G. Fannon and Thomas J. Barton of Philadelphia’s Drinker Biddle & Reath, moved to dismiss Blair’s suit, citing the mandatory arbitration agreement the company adopted in February 1998. Judge Newcomer found that Blair signed an acknowledgment stating that she had read the arbitration agreement. But after Blair resigned in March 1999, Newcomer found, she never attempted to arbitrate her case and instead chose to file a charge of discrimination with the U.S. Equal Employment Opportunity Commission and later to file suit in U.S. district court. Newcomer found that federal law strongly endorses private arbitration agreements. The Federal Arbitration Act, he said, provides that written agreements to arbitrate controversies arising out of an existing contract “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Under the FAA, he said, courts must embrace a “liberal federal policy favoring arbitration agreements.” Because Congress’s intent in passing the FAA was to enforce private arbitration agreements, Newcomer found, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Blair’s lawyers argued that the arbitration agreement was invalid under Pennsylvania contract law since it was not supported by “consideration.” Newcomer found that “consideration” is defined as “an act, forbearance or return promise bargained for and given in exchange for the original promise.” By contrast, he said, “if the promise is entirely optional with the promisor, it is said to be illusory and, therefore, lacking consideration and unenforceable.” The arbitration agreement between SSG and Blair included consideration, Newcomer found, since both sides agreed to be legally bound and to give up all rights to bring lawsuits against the other in court. But Sperling argued that SSG’s retention of the right to modify the agreement rendered it invalid. Newcomer found that courts have invalidated arbitration agreements because an employer retained the right to modify the agreement. In Floss v. Ryan’s Family Steak House, the 10th U.S. Circuit Court of Appeals refused to enforce an arbitration agreement where the employer asked the employees to sign an arbitration agreement, but the agreement was between the employees and EDSI, a provider of arbitration services. The agreement gave EDSI the unlimited right to modify the rules without the employees’ consent. Although EDSI was obligated to provide some type of arbitral forum, the court found that it had “unfettered discretion in choosing the nature of that forum.” The 10th Circuit’s rejection, however, hinged on the fact that EDSI could modify the rules without the employee’s consent, rendering the arbitration agreement illusory and unenforceable. But Newcomer found that “the facts of this case stand in contrast to those of Floss.” The mere fact that SSG’s executive committee could modify the agreement did not render it illusory, Newcomer said, since the company was required to provide notice to the employee of any modifications. Newcomer found that SSG’s arbitration contract was supported by sufficient consideration because the company promised to put any change in writing, promised to provide Blair a copy of any material changes, and permitted Blair to accept material changes by staying employed with Scott. “Because Blair could accept material changes by remaining employed with [SSG], presumably she could reject these changes by resigning,” he wrote. Blair’s lawyers argued that even if the agreement were enforceable, not all of her claims arose under the agreement, such as her claim under the Pennsylvania Constitution’s Equal Rights Amendment. But Newcomer found that the 3rd U.S. Circuit Court of Appeals rejected a similar argument in Great Western Mortgage Corp. v. Peacock in which the plaintiff argued that because the arbitration agreement would deprive her of a two-year statute of limitations and to a jury trial under the New Jersey law against discrimination, the parties’ arbitration agreement was not enforceable. The Great Western court noted that under the FAA, the district court must decide only whether there was an agreement to arbitrate, and if so, whether the agreement is valid. The court then upheld plaintiff’s waiver of her right to jury trial explaining that the FAA is meant to have a preemptive effect, albeit a narrow one. The 3rd Circuit panel reasoned that when Congress enacted the FAA, it declared “a national policy favoring arbitration” and “withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” As a result, the panel concluded that waiver of a state law right to a judicial forum for the resolution of state claims is enforceable under the FAA. The court then left it to the arbitrator to decide whether the plaintiff waived the two-year statute of limitations. Relying on the same logic, Newcomer held that Blair’s waiver of a jury trial was an enforceable waiver under the FAA. “The fact that plaintiff’s waiver argument arises out of the Pennsylvania Constitution is of no import because the Supremacy Clause requires invalidation of any state constitutional or statutory provision that conflicts with federal law,” Newcomer wrote. Finally, Blair’s lawyers argued that the agreement was unenforceable because Blair is required to pay half of the arbitrator’s fees. Newcomer found that the 10th Circuit in Shankle v. B-G Maintenance Management of Colorado Inc. invalidated an arbitration agreement where the employee is required to pay one half of the arbitrator’s fees. In Shankle, the court explained that the arbitration agreement was unenforceable because the plaintiff could not afford the arbitrator’s fees and therefore the fee-sharing provision denied the plaintiff an accessible forum to resolve his rights. But Newcomer found that unlike the plaintiff in Shankle, Blair “fails to submit any proper evidence that she could not afford to pay the arbitration fees.” Instead, Newcomer found, Blair simply asserted in an affidavit that “I can’t afford to pay the costs of taking my case to arbitration.” But Newcomer found that Blair “fails to assess why she cannot afford arbitration, whether it is or is not possible to cut back on her expenses to afford arbitration, and whether when she was eligible to file for arbitration, she could afford arbitration.” In such cases, Newcomer said, “courts have repeatedly held that conclusory self-serving affidavits are insufficient to withstand a motion for summary judgment.”

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