Alaska Employment Law

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Introduction

The Ninth Circuit issued an opinion on Wednesday, September 9, 2009, addressing when and whether a court, as opposed to an arbitrator, should resolve threshold arbitrability issues.  The case is Jackson v. Rent-A-Center West, ___ F.3d ___ (9th Cir. 2009).  This summary briefly reviews the opinion and its significance.

The Case

Antonio Jackson worked at Rent-A-Center West.  He filed a race discrimination suit under 42 U.S.C. § 1981.  Rent-A-Center moved to dismiss and to compel arbitration based on an arbitration agreement that Jackson executed as a condition of employment.  Jackson argued that the agreement was substantively unconscionable because it included “one-sided coverage and discovery provisions and a provision specifying that the arbitrator’s fee was to be equally shared by the parties.”  Jackson also argued that the agreement was procedurally unconscionable because he had been forced to sign the agreement as a condition of employment.  Rent-A-Center countered by noting that the agreement included an express provision referring all questions concerning the agreement’s validity to the arbitrator to decide. 

The district court agreed with Rent-A-Center and granted the motion to dismiss and to compel arbitration.  The district court also determined that the cost sharing provisions were not unconscionable.  The district court did not address Jackson’s remaining arguments.  Jackson appealed.

Review of Some Basic Principles

State and federal law favors arbitration of disputes.  However, in order to compel arbitration of statutory claims, the arbitration provision must include a clear and unmistakable waiver of the right to prosecute those claims in court.  What constitutes a “clear and unmistakable” waiver is subject to some interpretation.  Under Alaska law, an effective waiver does not have to specifically reference statutory citations or the legislative name for an Act.  See Hammond v. State, 107 P.3d 871, 877-78 (Alaska 2005).  Instead, an effective waiver only needs a “provision whereby employees specifically agree to submit all federal [and state] causes of action arising out of their employment to arbitration” or a provision containing “an explicit incorporation of the statutory anti-discrimination requirements in addition to a broad and general arbitration clause.”  Id. (adopting test applied in the U.S. Courts of Appeals for the Second and Fourth Circuits). 

However, under Ninth Circuit precedent it appears as if something slightly more may be required—at least by specifically citing statutes and federal or state rights that are being waived.  See Doyle v. Raley’s Inc., 158 F.3d 1012, 1015 (9th Cir. 1998); Renteria v. Prudential Ins. Co. of America, 113 F.3d 1104, 1108 (9th Cir. 1997).  Given the somewhat uncertain guidance from the courts in this respect, many Alaskan employers who wish to have employment disputes arbitrated tend to err on the side of caution and build in more comprehensive and detailed waivers with specific references to claims and statutory citations. 

Significantly, the United States Supreme Court recently confirmed that arbitration provisions waiving the right to prosecute federal statutory claims in court were enforceable so long as they clearly and unmistakably waived the right to file suit in court, but the Court did not clarify the “clear and unmistakable” standard. See 14 Penn Plaza LLC v. Pyett, ___ U.S. ___ (2009).
Beyond the clear and unmistakable waiver requirement, arbitration provisions must be procedurally and substantively conscionable.  See Ingle v. Circuit City Stores, 328 F.3d 1165, 1175-76 (9th Cir. 2003).  Stated generally, this means that the terms must be reasonable and fair, and not oppressive or one-sided, and not be the product of a gross disparity of bargaining power. 

Furthermore, substantive rights protected by state or federal law may not be sacrificed.  The concept behind arbitration is that the employee should be entitled to the same (or substantially similar) basic rights and remedies that she or he would have if the case were litigated in court.  Arbitration is intended to be nothing more than a change in the forum where the dispute is resolved.
If an arbitration agreement undermines substantive rights, it runs the risk of being declared unconscionable and thereby unenforceable.  

However, courts may, if they are so-inclined, apply the “blue pencil” doctrine to redact or excise offending provisions for purposes of preserving the remainder of an arbitration agreement (or any contract, for that matter). Courts are generally more inclined to do so if an agreement includes what is called a severability clause.   However, in the absence of a severability clause, courts may still “blue pencil” offending provisions if there is some other basis to support the exercise of such powers (such as a public policy basis).   

The Court’s opinion

The Ninth Circuit reversed by a 2-1 split, Judge Thomas writing for the majority and joined by Judge T. G. Nelson.  The majority acknowledged that the arbitration agreement included an express provision referring all arbitrability questions to the arbitrator for resolution.  However, the majority concluded that this provision did not control where, as here, a party was challenging whether or not the agreement to arbitrate arbitrability itself was unconscionable.  In such circumstances, the majority concluded that the court should decide whether or not the arbitration agreement was unconscionable.

Turning to the merits, the majority agreed with the district court that the cost-sharing provision was not unconscionable because it provided that costs would be shared equally unless the law of the forum state required otherwise.  Jackson never came forward with any evidence to actually support his argument that sharing costs would be burdensome.  Consequently, he failed to support his argument that the cost-sharing provision was unconscionable.  However, the district court never reached any of the other conscionability issues.  Therefore, the majority reversed and remanded for the district court to analyze whether or not the other provisions in the arbitration agreement were unconscionable.

Judge Hall dissented.  She pointed out that under the majority’s analysis all arbitrability issues would now be analyzed by the court even if an agreement included a provision referring such issues to the arbitrator. In her view, this seemed a questionable result in light of law, policy, and precedent.  Judge Hall also observed that the arbitration agreement was “more favorable than most” similar agreements.

Lessons learned

There are a number of important lessons here for public and private employers:

• Employers should have counsel check their arbitration provisions (whether found in employment contracts or manuals) to ensure that the provisions include clear and unmistakable waivers of statutory rights, and that the provisions are substantively and procedurally conscionable.   Recognizing that different standards are applied depending upon whether one is in federal or state court (and depending upon which federal court), employers would be prudent to consider adopting the most stringent waiver terms that include general and particular waivers with statutory citations. 

• Employers should also consider including severability clauses in arbitration agreements, thereby allowing courts greater latitude in terms of blue pencil powers.  

• Employers should have counsel evaluate any cost-shifting or cost-splitting provisions, especially to the extent that such provisions affect anything that could be construed as a substantive right.   

• If employers intend that disclaimers in employee handbooks apply to arbitration provisions, they should be careful to link those up with specificity. 

Other developments on the horizon

Congress is now considering the Arbitration Fairness Act of 2009, H.R. 1020, introduced on February 12, 2009.  If passed, the AFA would preclude any pre-dispute agreement to arbitrate employment, civil rights, or consumer disputes (except for such provisions in collective bargaining agreements). 

The reasoning underlying the AFA is that employees and consumers often have no real understanding that they are waiving rights to file suit in court, arbitrators and private arbitration companies have institutional reasons to develop rules that favor employers and businesses, there is little effective judicial review of arbitration decisions because of the standard of review, and the federal policy favoring arbitration should not subvert individuals’ constitutional rights. 

Whether one agrees or disagrees with the AFA’s rationale, there is no denying that it would dramatically change arbitration agreements used in Labor and Employment law.  It is also probably fair to state that the AFA will probably gain at least some traction in Congress given its current composition. How much traction it gains remains to be seen.