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.
