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Court rules “unenforceable” arbitration

US courts find arbitration agreements signed by employees are ‘unconscionable’

The long-running case of Compton vs AMS has had a breakthrough as the Second Appellate District court ruled that the arbitration agreement signed by Compton is ‘unconscionable’ and therefore unenforceable. The decision is a milestone for employment contract litigation that has long been thought to favour employers.

Leasa Compton has been deadlocked in a legal battle with her former employer American Management Service over the payment of minimum and overtimes wages, rest and meal breaks and the reimbursement of expenses. AMS had used an arbitration agreement signed by Compton at the job application stage of her employment as its defence. The agreement compelled AMS employees to submit to arbitration in all claims arising from their employment. The court has heard that “by compelling employees to arbitrate the claims they were most likely to bring, while retaining for itself the right to litigate those claims it was most likely to bring, the employer created an essentially unilateral arbitration agreement.”

The arbitration agreement, a common contract between employers and employees in the US, prevented Compton from bringing her claims to court. It was deemed unconscionable because no such provision were made for claims made by her employers. By ruling the agreement unenforceable the appellate court has opened the gates for Compton to pursue her claims in court, as she had intended when she filed them in 2010. The ruling in favour of Compton by the Second Appellate District court overturns a previous ruling in favour of AMS.

As well as compelling employees to enter into arbitration, it also set a statue of limitation for claims that was unreasonably short, considering the average length of the process, therefore often frustrating plaintiffs’ claims before they were even heard in arbitration.

Furthermore the agreement precluded the employer from similar statutes of limitation, compounding to the one-sidedness of the agreement.

But the ruling is significant because it is one of a number of cases that have been decided in favour of plaintiffs (employees) in the US. Previously companies had often felt protected by simply drawing up contracts that attempted to prevent current or former employees from bringing claims against their employers. But the Compton ruling has highlighted the risk of drawing up contracts that are extremely unfavourable to the employees in an unbalanced way. Michael Newman, attorney at Barger & Wolen, has suggested that employers should review their current arbitration agreements to ensure they are compliant with the new rulings. “Employers would be well-advised to consult an attorney who can review their employment contracts and advise them as to whether they comply with the principles discussed by the Court in Compton.”



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