Alaska Employment Law

Applying Oregon law, a 9th Circuit panel has held that the combination of substantial disparity in bargaining power and unreasonably favorable terms to the more powerful party renders a mandatory arbitration agreement unconscionable.

Disparity in bargaining power is endemic in contracts between employees and employers. It is present here. Gray, as an employee, had virtually no bargaining power when he signed RAC’s standard form arbitration agreement. He had no real opportunity to negotiate the terms.

Combined with the unequal bargaining power, the arbitration agreement includes a cost-sharing term that requires the employee and employer to share the costs of arbitration equally.  As a practical matter, an equal cost of arbitration will discourage most workers from seeking redress from an employer in the arbitral forum. An arbitration agreement cannot “den[y] a litigant the opportunity to vindicate his or her rights in the arbitral forum.” Vasquez-Lopez, 152 P.3d at 951 (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90 (2000)). A litigant is effectively denied access to the arbitral forum “when the cost of arbitration is large in absolute terms . . . [and] . . . th[e] cost is significantly larger than the cost of a trial.” Id. at 952. Gray testified that he is financially unable to pay the anticipated $7,500 in arbitration expenses; his testimony is uncontradicted.  For Gray, who earns minimal wages, several thousands of dollars is both large in absolute terms and large relative to the cost of a judge, for whom neither party has to pay in civil court. Equal cost sharing here is “sufficiently onerous” to deter Gray from vindicating his claim.

Gray v. Rent-a-Center West, Inc., 2008 WL ______ (9th Cir. Aug. 21, 2008)(unpub.)(citations and footnotes omitted)

Comment: Mandatory arbitration of statutory employment claims is currently before the Alaska Supreme Court.

09/25/08 Update: The 9th Circuit vacated the opinion today, apparently because the parties settled the matter.