Sign up for regular news, views and insights about corporate governance

Name
Email
Company
Job title
Industry

Close

Setting the benchmark in corporate integrity

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.”

 

News

ASIC pushes ahead with annual report reforms

Australian regulator demands more information on strategy from public companies in their annual financial statements

SASB set ambitious targets for reforming sustainability reporting

Sustainability advocate SASB is aiming to transform the way a number of core US industries report on their environmental and social practices

‘Lack of clarity’ in UAE corporate governance

Report raises concerns over listed companies failing to provide clear corporate governance policies

Just how flexible is the UK employment market?

Government declares that “firms have a duty to hire Britons” but what are the implications for employers?

Gulf Keystone Petroleum clash with top investor over structure demands

City investor M&G has ruffled feathers at Gulf Keystone after telling the oil company it needs to appoint non-executive directors to its board

Social business collaboration enhances corporate communications

Social media technologies offer unprecedented digital opportunities to share information, communicate and collaborate which are now being translated into a means of internal corporate communication management

EADS says shareholders to get higher dividends in future

Airbus owner signals change in strategy that may benefit shareholders

UAE discusses role of CSR in sustainable development

Philanthropy and sustainability debated at forum arranged by UAE’s University Leadership Council

A new model for financial reportage

A widely accepted problem of financial disclosure and reportage is that no two institutions use the same methods

EU’s proposed CSR rules split industry and NGOs

Businesses call CSR rule changes too strict, while NGOs say they don’t go far enough

Notable reports

Some of the leading reportage in corporate governance

Attitudes shift towards sustainability reporting

Increased scrutiny from investors and social media means companies are starting to take sustainability reporting more seriously

Poor governance: a tax on Russia’s innovative companies

Recent reports reveal the extent to which investment is hindered by poor governance in Russia, and outlines the ways in which it can be combated

Health audit ceases force’s IT system

Surrey Police forced to abandon failed multi-million pound computer system