It is not easy to challenge an arbitration clause. Employers like them because workers sign them in order to start a new job, and the clauses require them to litigate any employment disputes out-of-court, a much less expensive proposition for the employer. Rita Ragone learned just how hard it is to challenge these clauses.
The case is Ragone v. Atlantic Video, decided on February 17. When Ragone sued her employer in court for employment discrimination, management invoked the arbitration clause, which required her to submit to binding arbitration. The clause also limited her statute of limitations, required her to pay management's legal fees if she lost the hearing and limited her pre-hearing discovery.
These are some pretty dramatic provisions. Which is why management decided not to enforce some of them, namely the statute of limitations and attorneys' fee provision. They also waived the provision that prevented Ragone from appealing any adverse arbitration provision to federal court. Smart move. Without these provisions, Ragone's argument in the Court of Appeals that the arbitration agreement is unconscionable and therefore unenforceable fails. Unconscionability arguments are hard enough to win without management waiving the more draconian provisions. While Ragone also argues that the agreement as a whole is unconscionable because it "contain[ed] numerous unconscionable and oppressive terms, is irredeemably tainted by unconscionability and unlawful purpose," the Court of Appeals rejects what it calls "not an inconsiderable argument" in finding that New York contract and arbitration law would deem the agreement modified in light of management's decision to waive the more oppressive provisions.
The Court of Appeals (Pooler, Hall and Livingston) does bless us with a "note of caution" in emphasizing that it finds for the employer in this case "with something less than robust enthusiasm." (Double negatives are common in federal rulings, by the way). The Court says that the arbitration agreement would not necessarily be legal had management not decided to waive the oppressive provisions. In particular, the Second Circuit does not like the tight statute of limitations and attorneys' fees provision which contravenes settled law that unsuccessful plaintiffs pay the defendant's fees only when their cases are completely frivolous.
An interesting note for those of you who like street language in federal court opinions. Ragone argued that she was forced to "take it or leave it" when management asked her to sign the arbitration clause. But as the Court of Appeals notes, this will not support an unconscionability argument. She also argued that she did not read the agreement before signing it. Here's a quiz for everyone: in light of what we know about how difficult it is to challenge arbitration agreements, how do you think the Court of Appeals resolved this particular argument?