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For most employees, signing an arbitration agreement at the beginning of employment is akin to agreeing not to go sky-diving while on the job. The employee never expects the provision to be needed, so why not? Many employers, of course, see the arbitration agreements as critical cost-containment vehicles in an era of ever-increasing litigation. Since the Circuit City v. Adams and Gilmer v. Interstate U.S. Supreme Court decisions, with a few others, including GreenTree Financial Corp. v. Randolph in between, there has been a drop in the number of decisions regarding the validity of arbitration agreements. A recent decision from the U.S. District Court for the Eastern District of Pennsylvania demonstrates the strength of a well-crafted arbitration agreement in precluding virtually all employment-related litigation brought in court. CLAIMS COVERED In Cuie v. Nordstrom Inc., the court considered the validity of Nordstrom’s dispute resolution policy signed by John Cuie when he began his employment with the company in Georgia, before transferring to the King of Prussia, Pa., store. Initially, the court observed that the Federal Arbitration Act applies to statutory employment claims in accordance with Gilmer and Circuit City. Procedurally, Cuie, a former cosmetics salesperson, brought a claim of sexual harassment against Nordstrom. Nordstrom filed a motion to stay the court action pending arbitration. Initially, therefore, the court needed to assess whether: there was a valid written agreement to arbitrate; the issues sought were arbitrable under the agreement; and whether Cuie had failed or refused to arbitrate the claims covered by the agreement. In this case, only the first consideration, whether the agreement to arbitrate was valid, was in dispute. CONTRACT LAW CONSIDERATION Because the agreement to arbitrate is a contract, the FAA requires courts to look first into the relevant state law of the contracts in order to determine the validity of the agreement. Because basic contract law is the same under the laws of Pennsylvania and Georgia, the court did not address any choice of law issues. The touchstones of contract law are, of course, offer, acceptance and consideration. Nordstrom had made its dispute resolution policy and arbitration agreement part of its offer of employment to Cuie, and he had acknowledged both by signing his employment application and the arbitration agreement itself. The contract, therefore, was neatly wrapped up in the earliest stages of the employment relationship. In fact, the arbitration agreement specifically required Cuie to acknowledge: “I understand that I would not be or remain employed by Nordstrom absent signing this agreement. My signature below acknowledges I understand and agree that in consideration for my employment with Nordstrom Inc., I agree to the Nordstrom Dispute Resolution Program.” Cuie worked for Nordstrom for nearly four years, which the court found to be adequate consideration for the agreement to arbitrate. The arbitration agreement highlighted that Cuie would “agree and consent to arbitrate any covered claim between myself and Nordstrom, including but not limited to harassment and discrimination, as more clearly defined in the program booklet.” The agreement further stated explicitly that Cuie would “waive my right to a jury trial or bench trial on any claims involving employment disputes between myself and Nordstrom.” The referenced Dispute Resolution Program Booklet listed the “legally protected rights” covered, which included the panoply of possible statutory claims. Cuie challenged the agreement on the grounds of unconscionability. The court found, “under Pennsylvania law, the test for unconscionability is whether one of the parties lacked meaningful choice about whether to accept the provision or contract in question and the challenged provision or contract unreasonably favors the other party to the contract.” In order for a defense of unconscionability to be successful, there must be both procedural unconscionability (addressing the process of making the contract) and substantive unconscionability (considering the terms of the contract itself). Cuie specifically complained that the arbitration agreement was unconscionable because it required him to incur “unfair costs and fees.” Specifically, the agreement provided that any arbitration would be conducted by the American Arbitration Association, which would require a filing fee of “at least $500.” The agreement required that Cuie pay $140 upon requesting arbitration, while Nordstrom would pay the remainder of the filing fee, all of the arbitrator’s fee and any other AAA administrative expenses.” The only other fees required for Cuie would be those for his own attorney, any witnesses that he might call, the cost of any deposition and any other evidentiary costs. In essence, Cuie would be required to pay for his own advocacy. While Cuie apparently submitted documents going to the substance of his claim of harassment, “notably missing [was] any showing of financial wherewithal, such as income statements or statements of net worth of the plaintiff or in any affidavit or evidence showing how the potential for fee-shifting of attorney fees is tantamount to the existence of large arbitration costs which would preclude a litigant such as plaintiff from effectively vindicating his federal statutory rights in the arbitral forum.” The court observed, somewhat trenchantly, that the $140 arbitration costs hardly seemed onerous, given that it was “some $90 less than what he spent in initiating this civil action here.” In all other respects, the court observed, Cuie’s costs were speculative and it is clear that “plaintiff’s speculation about prohibitive costs is not enough to invalidate an otherwise enforceable arbitration provisions.” The court, therefore, granted Nordstrom’s motion and stayed legal action in favor of arbitration. The case highlights that a comprehensive arbitration agreement, even one that requires financial participation of the alleged victim, will be valid under Pennsylvania and federal law. Sid Steinberg is a partner in Post & Schell’s business law and litigation department. He concentrates his national litigation and consulting practice in the field of employment and employee relations law. Steinberg has lectured extensively on all aspects of employment law, including Title VII, the FMLA and the ADA.

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