Tuesday, November 3, 2015

Ohio Appeals Court Refuses to Compel Arbitration of Employment or Sexual Assault Claims Where Arbitration Agreement Was Overly Broad and Ambiguous

Last Thursday, a divided Cuyahoga County Court of Appeals affirmed the denial of a motion to compel arbitration of an employee’s rape and sexual harassment claims against her former restaurant employer even though she signed an arbitration agreement covering any claims relating to her employment, “claims or controversies relating to events outside the scope of your employment,” claims involving ““personal or emotional injury to you or your family,” and excluded only claims where the ““exclusive remedies under either workers compensation law or employee injury benefit plan” or which involved “the risk of irreparable harm, such as the disclosure of confidential information.” Arnold v. Burger King, 2015-Ohio-4485.  The Court unanimously found that the plaintiff’s claims based on the alleged sexual assault did not relate to her employment or fall within the scope of the arbitration clause.  The majority also found that none of the plaintiff’s other claims of employment discrimination, retaliation and threat of termination, etc., were reasonably foreseeable to her to arise out of her employment and could not have been intended or agreed by her to be within the scope of the arbitration clause.  The majority also found the arbitration clause to be unconscionable.  

According to the Court’s lengthy opinion, upon being hired in May 2012, the plaintiff executed a mandatory arbitration agreement submitting disputes to JAMS for resolution.  The MAA contained terms describing the scope of the agreement including:

·        Any and all disputes, claims or controversies for monetary or equitable relief arising out of or relating to your employment, even disputes, claims, or controversies relating to events occurring outside the scope of your employment (“Claims”), any claims relating to her employment,

·        claims involving ““personal or emotional injury to you or your family,”

·        Claims against the franchise’s officers, directors, managers, employees, owners, attorneys and agents, as well as to any dispute you have with any entity owned, controlled or operated by Carrols Corporation.

The plaintiff filed suit against Burger King, the franchise and her former supervisor after she had been sexually assaulted by her supervisor during working hours in the men’s restroom (which she had been assigned to clean) and suffered additional sexual harassment. She also alleged that the franchise and her supervisor retaliated against her and threatened to fire her when she attempted to enforce her rights.  She specifically claimed that she had suffered from sex discrimination in her employment.  The franchise moved to compel arbitration and the trial court denied that motion without opinion.  

The Court rejected the plaintiff’s argument that disputes against the franchise were not covered by the MAA, which was signed by Carrols Corporation. Carrols Corporation was not a party to the litigation.  Carols Restaurant Group, Inc. was the sole member of Carols LLC (i.e., the franchise).  Even though the franchise was not a signatory to the MAA, it could still enforce it as an owner or agent of the Corporation.   

The Court recognized that federal and state law encourage arbitration and a strong presumption that disputes fall within an arbitration clause.  Indeed, the Ohio Supreme Court has concluded that a motion to compel arbitration “should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.”  The Court also felt that adhesion contracts between parties of disparate bargaining power were subject to greater scrutiny than other contracts. Ultimately, a court should not refer to arbitration claims which the parties did not intend to be arbitrated.  Importantly, merely because there is a contract between the parties does not make every dispute between them arbitrable:
 

For example, if two small business owners execute a sales contract including a general arbitration clause, and one assaults the other, we would think it elementary that the sales contract did not require the victim to arbitrate the tort claim because the tort claim is not related to the sales contract. In other words, with respect to the alleged wrong, it is simply fortuitous that the parties happened to have a contractual relationship.”

The Court identified a number of tort and statutory claims – such as identity theft by a lender’s employee or an anti-trust dispute --  which other courts had refused to find within the scope of an arbitration clause because the claims did not involve the business relationship that supported the arbitration clause.  A proper method of analysis here is to ask if an action could be maintained without reference to the contract or relationship at issue. If it could, it is likely outside the scope of the arbitration agreement.”  In particular, the Court was influenced by decisions where courts had refused to compel arbitration of “outrageous torts that are unforeseeable to a reasonable consumer in the context of normal business dealings,” and “those outrageous torts, which although factually related to the performance of the contract, are legally distinct from the contractual relationship between the parties.” 

With this in mind, the Court concluded “a lawsuit arising from a rape is an outrageous tort that is legally distinct from the contractual [employment] relationship between the parties.”  The Mississippi Supreme Court found a similar working hours rape claim by another restaurant employee to also be outside the scope of a similar arbitration clause (covering all claims relating to employment), as were the negligent hiring, retention and supervision claims.  The Court also cited to other federal cases involving other workplace sexual assault claims which were similarly found to be outside the scope of an arbitration clause relating to employment.

The Court was also influenced by the franchise defendant’s ability to foresee the potential harm to the plaintiff in light of pending EEOC litigation filed eleven years ago against it in New York involving class allegations of sexual harassment.   The Court also decided to construe ambiguities in the arbitration clause against the defendant employer in divining the intent of the parties.  Notably, the employer had posted a notice in every restaurant that purported to summarize the MAA and which contended that it only applied to employment-related claims:

 . . .  the Policy Notice (“Policy Notice”) posted in the restaurant location states, “employment related disputes that cannot be resolved internally will proceed to arbitration rather than in a lawsuit.” It does not say that disputes arising outside the scope of employment are also required to proceed to arbitration. An agreement to arbitrate claims that arise outside the scope of employment results in an infinite and unforeseeable variety of potential claims.
The Court also found it significant when the employer specifically identified certain statutory claims, but not others:

Additionally relevant to assessing foreseeability and expectations is whether there was an understanding of what the parties understood the MAA language to mean. The MAA provides a list of legal causes of actions and laws, in legal terminology, such as strict liability, Family Medical Leave Act, and Employee Retirement Income Security Act.
 . . . .The agreement does not, in any way, explain the tremendously overreaching impact of its terms on the employee’s life both within and outside the scope of employment. There is no bold language such as is required in consumer agreements putting the employee on notice of the extensive abrogation of rights.

Ultimately, the court unanimously agreed that the claims arising out of the alleged sexual assault existed outside the employment relationship and did not fall within the scope of the arbitration clause.  Any individual could assert the same causes of action based on the underlying facts.”  A patron subjected to such misconduct could bring claims at the Ohio Civil Rights Commission for discrimination and employment. 

Where the majority and dissent parted ways is that the majority of the Court found that it was not foreseeable that the plaintiff could be subjected to sexual harassment in connection with her employment.  According to the Court, unless the claims were foreseeable, the plaintiff could not have expected them to be covered by the arbitration clause and, therefore, could not have agreed to it as a matter of contract law.  

We find that ongoing verbal and physical contact culminating in sexual assault as well as retaliation, harassment, or other detrimental acts against Arnold based on the unlawful conduct is not a foreseeable result of the employment.
In any event, the majority also found that the arbitration clause was unenforceable because it was both procedurally and substantively unconscionable.
“Procedural unconscionability concerns the formation of the agreement and occurs when no voluntary meeting of the minds is possible” and “consider[s] the relative bargaining positions of the parties including each party’s age, education, intelligence, experience, and who drafted the contract.” Based on many of the issues already discussed, the Court found that the MAA was procedurally unconscionable. 

The Court also found the MAA to be substantively unconscionable “inasmuch as the MAA sought to include every possible situation that might arise in an employee’s life, the clause is substantively unconscionable as the arbitrator would be resolving disputes unrelated to employment.” 

The Court observed that the employer’s arbitration Policy Notice was misleading when it said that arbitration was less expensive for both sides because arbitration fees are more expensive than court filing fees (even though the employer agreed to reimburse the employee for 50% of the arbitration filing fee if the employee provided an unspecified proof of payment within two weeks). In this case, there was no way for the employee to tell how much the fees might be.  Moreover, the MAA limited the financial recovery of that a prevailing employee could receive and said nothing of attorney fees (although the JAMS website indicated that all remedies remains available).  In addition, the JAMS website was confusing: 

There is a true labyrinth of information with links to rules, forms, ethics, discovery protocols, etc. There is nothing to direct an arguably unsophisticated individual through the maze of information in order to ascertain which of the multiple documents apply to pursuing arbitration against Carrols.
The MAA provides that an employee is to send a complaint to JAMS with a copy to Carrols’ legal department. The JAMS website contains a six page form entitled “Demand for Arbitration” that was last updated “11/24/14.” It is unknown whether a similar form was required to be filed to initiate arbitration via the MAA. To fill out the form, a party must know whether they are pursuing arbitration on a predispute, post dispute, oral dispute, or court order. A $400 nonrefundable “Case Management Fee” is also required. There is no schedule of fees contained in the document, just as there was none provided to the trial court via Carrols’ submission of the applicable rules and regulations. In fact, this court’s attempt to ascertain the costs attendant to pursuit of arbitration applicable to this case was an exercise in futility.

The majority – like some other courts – also implied that consideration was illusory because the parties’ promises were not mutual in that the employer exempted claims involving irreparable harm, such as breaches of confidentiality.  However, it did not push the point since there is no legal requirement that promises be mutual in order to be enforceable.   Instead, it made a nonsensical argument that the plaintiff “may be “irreparably harmed” if she is forced to defend herself at arbitration on a sensitive and emotionally scarring subject involving explicit personal details” as though it would be easier to testify on the same subjects in open court.
 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.