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With increasing frequency in recent years, employers in many industries, other than the financial services industry, have embraced the use of arbitration as the exclusive dispute resolution mechanism with their employees. In the judicial afterglow of Gilmer and its progeny, arbitration has been used as the forum for resolution of the full panoply of employment-related disputes, including statutory claims for employment discrimination, and those arising in the context of the Fair Labor Standards Act. [FOOTNOTE 1] Despite this enhanced judicial endorsement, some plaintiffs have continued to challenge arbitration as an unlevel playing field. One fact pattern that illustrates such challenges involves litigation over the enforceability of arbitration agreements contained in job applications. This article compares two recent cases involving that fact pattern where courts have reached divergent outcomes. The Federal Arbitration Act states that arbitration agreements in any “contract evidencing a transaction involving commerce … [are] valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. �2. Generally applicable state-law contract defenses such as fraud, mistake, duress, forgery, lack of consideration and unconscionability may invalidate arbitration agreements. Cap Geminie Ernst & Young, U.S., L.L.C. v. Nackel, 346 F.3d 360, 364 (2d. Cir. 2003). ANALYSIS Employees are using these state-law defenses as grounds for invalidation of arbitration agreements. For example, in Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d 370 (6th Cir. 2005) Petition for Certiorari Filed, 73 USLW 3734 (June 7, 2005) (No. 04-1672), employees of Ryan’s sued to remedy alleged violations of the FLSA. Pursuant to FAA ��3 and 4, Ryan’s moved to dismiss the complaint and for an order compelling plaintiffs to arbitrate their claims in accordance with the arbitration agreements signed at the outset of their employment. Ryan’s appealed the Tennessee district court’s denial of its motion to compel arbitration. As alleged in the complaint, since 1997 all applicants to Ryan’s have been presented with a 12-page application packet containing: a notification that all applicants must sign an agreement to arbitrate employment-related disputes; rules and procedures governing the arbitration agreement; and a job application. The arbitration agreement signed by the job applicant is one between the applicant and Employment Dispute Services Inc. (EDSI), a corporation hired by Ryan’s to administer its arbitration program. In its opinion, the court addressed whether: (1) Ryan’s had provided adequate consideration; (2) plaintiffs knowingly and voluntarily executed their arbitration agreements; (3) the arbitration agreements between plaintiffs and EDSI were the result of a meeting of the minds in mutual assent; and (4) the arbitration agreements were unconscionable adhesion contracts. As to the issue of the adequacy of consideration for the arbitration agreement, Ryan’s contended that the fact that it would not consider employment applications without prior agreements to arbitrate, was adequate consideration for an applicant’s promise to arbitrate. The court disagreed, and stated that “merely a promise to consider an applicant’s application, not employ her, … standing alone, will not bear the weight required to allow us to construe the Arbitration Agreement as a binding contract.” Walker, 400 F.3d at 380, quoting Geiger v. Ryan’s Family Steak Houses, Inc., 134 F.Supp.2d 985, 1001 (S.D. Ind. 2001). The court further suggested that Ryan’s promise to consider only applicants who agree to arbitrate was rendered illusory by evidence of three employees who were hired without first signing arbitration agreements. Id. at 381. The Walker court also considered the plaintiffs’ contention that they did not knowingly and voluntarily waive their right to bring suit in federal court. The court considered the following factors, in making its determination: (1) plaintiff’s experience, background and education; (2) amount of time plaintiff was given to consider the waiver, including whether the employee had an opportunity to meet with a lawyer; (3) clarity of the waiver; (4) consideration for the waiver; and (5) the totality of the circumstances. Id. The court noted that most of the plaintiffs were in dire financial circumstances with low level educations. Referring to a statement from one plaintiff, the court observed that: hiring managers would neither mention the arbitration agreement nor inform applicants that they could take the agreements home or consult an attorney. Though the waiver conveyed — what the court characterized as the key concept — that the applicant/employee would not be permitted to bring a claim in court, the court held that the totality of the circumstances supported a conclusion that plaintiffs did not knowingly and voluntarily execute their arbitration agreements. Id. at 383. Under the governing Tennessee law, the court observed that “a contract must result from a meeting of the minds of the parties in mutual assent to the terms.” Id. Evidence suggesting that plaintiffs were: misled about the meaning of the agreements; not provided with the rules; and did not know what they were signing, led the court to agree with the lower court’s findings that these factors overcame the presumption that parties are under a duty to read and learn the contents of a written contract before signing and once the contracts were signed may not deny that the contract expresses the agreement made. Id. The court held that Ryan’s did not meet its burden of showing that the plaintiffs bargained for the arbitration agreement. Accordingly it determined that the plaintiffs did not mutually assent to arbitrate their employment dispute with EDSI. Id. at 384. Although the district court held that the plaintiffs’ arbitration agreements were unenforceable adhesion contracts, the 6th U.S. Circuit Court of Appeals did not rule on this issue. Under Tennessee law, plaintiffs must demonstrate “the absence of meaningful choice for the party occupying the weaker bargaining position.” Id. at 385. The court observed that plaintiffs cited no evidence to support a finding that plaintiffs would not have obtained suitable employment elsewhere if they refused to sign. The court noted, however, that in the case of three plaintiffs who obtained employment without signing an agreement, Ryan’s had significantly more bargaining power over them, because the potential risk of termination for not subsequently signing an agreement, created an absence of meaningful choice. The court opted not to remand the case to the district court for re-examination of this issue because the arbitration agreements were unenforceable on other state law grounds. Additionally, the court affirmed the district court’s determination that the agreements were unenforceable under FAA because they did not allow for effective vindication of plaintiffs’ rights under the FLSA. The court stated that parties generally may not avoid arbitration by alleging bias because the FAA allows courts to overturn arbitration decisions where there is evidence of partiality or corruption in the arbitrators. Id. However, the court also stated that where the arbitrator selection process is unfair, a pre-arbitration challenge is permitted because “the arbitral forum is not an effective substitute for a judicial forum.” Walker, 400 F.3d at 385 (quoting McMullen v. Meijer, Inc., 355 F.3d 485 (6th Cir. 2004)). The Walker court held that EDSI’s arbitral forum was not neutral. Ryan’s contributed 42 percent of EDSI’s gross income in 2002, creating a symbiotic relationship between the two entities. Since EDSI reserved the right to provide employees with a pool of arbitrators from which they could pick, the court suggested that Ryan’s effectively determined the pool of arbitrators that would preside over its own employees’ disputes. Furthermore, since EDSI was performing a service for which it was being paid, its own business interests created further potential for bias. Id. at 386. The court believed that the lack of criteria, such as education, relevant experience, and impartiality governing prospective arbitrators also created a bias against the employees. Finally, the court held that the term restricting discovery to one deposition, particularly when controlled by a potentially biased arbitration panel, created unfairness to the plaintiffs. Id. at 387. CONTRASTING RESULT By contrast to the 6th Circuit’s decision in Walker, other courts have enforced arbitration agreements contained in job applications. Martindale v. Sandvik, Inc., 800 A2d 872 (N.J. Sup. Ct. 2002), illustrates such a contrasting outcome. In Martindale, an employee, hired as a benefits administrator for Sandvik, a metals tool manufacturer, asserted claims against her employer under the New Jersey Family Leave Act (FLA) and the New Jersey Law Against Discrimination (LAD). Sandvik moved to stay proceedings and to compel arbitration pursuant to the agreement in the employment application. In assessing plaintiff’s challenge to the enforceability of the arbitration agreement, the court first considered whether a valid agreement existed. The court stated that “[d]etermining whether plaintiff is contractually bound is the predicate to the question whether the specific contractual language requires arbitration of … claims.” Id. at 876. In considering whether plaintiff had entered into a binding agreement, the court noted that arbitration agreements may not be subjected to more burdensome contract formation requirements than would any other contract. The court observed that under New Jersey law an employer’s promise to consider an applicant for employment is adequate consideration for an applicant’s execution of an arbitration agreement even though the employer has no obligation to hire the job applicant. Id. at 879. The court stated that “[d]efendant’s consideration of plaintiff’s application, its extension of an offer and the commencement of employment, and thereafter the provision of compensation and on-going employment constituted sufficient consideration to support the parties’ agreement to arbitrate their disputes.” Id. Plaintiffs also argued that the arbitration agreement was unenforceable because it constituted an adhesion contract. The court stated that even if the agreement were adhesive, this would not automatically render it void. Citing Gilmer, the court stated that “mere inequality in bargaining power … is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context.” Id. at 880. Furthermore, the Martindale court reasoned that, in Gilmer, the Supreme Court intended to invalidate arbitration agreements only when the circumstances were “more egregious than the ordinary economic pressure faced by every employee who needs a job.” Id. The court stated that the arbitration agreement was not presented on a take-it-or-leave-it basis and noted that the plaintiff was an educated person who had experience in the human resources field. The court found that plaintiff was given the opportunity to ask questions, review the application and agreement — to which she asked to alter terms and was refused — and consult with a third party. The court held that plaintiff did not demonstrate that the terms of the arbitration agreement were oppressive or unconscionable. The court also noted that New Jersey courts have found numerous agreements to arbitrate that do not violate public policy, stating that “even if the arbitration agreement could be [characterized as a contract of adhesion], the agreement’s subject matter and public interests affected lead to the conclusion that it should not be invalidated.” Id. at 881. The court then examined the scope of the agreement, noting that if the parties have agreed to arbitrate, they should be bound by the agreement unless their claims cannot properly be vindicated by the forum provided in the agreement. Plaintiff contended that the language of the agreement was too vague and ambiguous such that it did not convey an intent to waive her rights to a jury trial. The arbitration agreement stated that she “agreed to waive her statutory right to a jury trial in any action or proceeding relating to her employment with Sandvik.” Id. at 883. The court held that the language in the agreement was clear and unambiguous, and it was sufficiently broad to encompass plaintiff’s statutory claims. The court rejected plaintiff’s contention that she did not knowingly and voluntarily waive her rights to a judicial forum because the circumstances surrounding her execution of the agreement — opportunity to ask questions, consult with a third party and review before signing — combined with education and experience did not warrant an invalidation of the arbitration agreement. Id. at 884. ISSUES TO CONSIDER Though the factors determining enforceability in the cases discussed above are similar, as illustrated in this article, courts may apply such factors differently. Accordingly, employers who wish to enter into arbitration agreements should understand these varying rules of law and take the steps necessary to maximize the likelihood that a court will find the arbitration agreements to have been entered knowingly and voluntarily. Issues that employers may consider in determining whether their arbitration agreements are enforceable include the following: � Whether the terms of the arbitration agreements are sufficiently clear and reflect a scope that is sufficiently broad as to cover the types of claims that may be the subject of dispute with employees; � Whether applicants have the opportunity to 1) ask questions, 2) review and understand the arbitration provisions, 3) take away the application and consult with a third party or 4) revoke consent to the arbitration agreement during a specified grace period; � Whether governing authority in the relevant jurisdiction provides that arbitration under the particular arbitration agreements sufficiently vindicates applicable statutory rights; [FOOTNOTE 2] and � Whether a particular jurisdiction imposes any additional requirements. Jeffrey S. Klein and Nicholas J. Pappas are partners at Weil, Gotshal & Manges. Dionne Y. Cutting, a law student at Howard University School of Law and a 2005 summer associate at the firm, assisted in the preparation of this article. ::::FOOTNOTES:::: FN1 Gilmer v. Interstate/Johnson Lane Corp., 500 US 20, 25 (1991) (discussing ADEA claims); Sinnett v. Friendly Ice Cream Corp., 319 F.Supp.2d 439, 441 (S.D.N.Y. 2004) (discussing FLSA claims). FN2 Key elements courts have considered in this analysis include whether the arbitration program allows for: (1) neutral arbitrators; (2) unbiased selection process for those arbitrators; (3) criteria governing who is eligible to serve as arbitrators, i.e. minimum education requirements, relevant experience, substantive and/or procedural knowledge of dispute resolution and relevant employment law ( Walker, 400 F3d 370, 387); (4) whether or not there exists a cost sharing arrangement. Cole v. Burns Int’l Sec. Servs., 105 F3d 1465, 1482 (D.C. Cir. 1997).

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