Case Summary: Garrett v. Hooters-Toledo, 295 F. Supp. 2d 774 (N.D. Oh. 2003)
This case considers whether a mediation agreement that an employee signed as a condition of her employment is enforceable even though the agreement imposes time limits on the plaintiff's ability to file the claim, precludes the employee from having representation at the mediation, locates the mediation far from the employee's home and limits the number of witnesses the employee can have testify on her behalf.
The federal district court determined that the ADR Agreement was both substantively and procedurally unconscionable, violated Ohio common law and was unenforceable. Thus, the defendants' motion to compel arbitration and stay the proceedings was denied.
A former Hooters employee was terminated after informing her employer that she was pregnant. She filed suit against her former employer, alleging that she was wrongfully discharged. The defendants filed a motion to stay proceedings and compel arbitration under the Federal Arbitration Act, claiming that the plaintiff had signed an arbitration agreement and was bound by the terms of the contract. The plaintiff alleged that the agreement was procedurally unconscionable because she was required to sign the arbitration agreement as a condition of her employment. Moreover, she claimed that she signed the agreement without understanding the terms and was not given an opportunity to have the contract explained. The employee also alleged that the contract was substantively unconscionable because the cost splitting provision of the agreement requiring the claimant to pay the lesser of one half of the expenses or the equivalent of one week's average gross compensation and the requirement that any claims filed under the agreement be adjudicated in Jefferson County, Kentucky were cost-prohibitive; the requirement that claims against Hooters be filed within ten days from the last day on which the claim arose severely limited a potential claimant's ability to meaningfully assess and assert her rights; the "take it or leave it" demand to sign the agreement had a coercive nature as well as elements of unequal bargaining power; the claimant's inability to be represented by counsel was evidence of unfair treatment; and the agreement providing that mediation was to be conducted by two mediators, one to be chosen by the employer and one to be chosen by the claimant from the company's list of mediators.
Although the federal district court found the plaintiff's arguments regarding the cost-prohibitive nature of the agreement persuasive, the court found that there was not enough evidence in the record to establish that this provision was substantively unconscionable. The court did, however, find other provisions in the agreement substantively unconscionable. For instance, the court found that the sole purpose and effect of the ten day filing limitation was to discourage litigation by making it all but impossible for a discharged employee to effectively file a claim and therefore it was substantively unconscionable.
In addition, the clause prohibiting the claimant from having counsel representation provided an unfair disadvantage, favoring the defendants, and therefore was substantively unconscionable. Furthermore, the forum selection clause placed an undue burden on the plaintiff, as well as on any witnesses, and thus was found to be substantively unconscionable. Finally, the process for choosing the mediators, allowing the employer to choose one mediator and the claimant to choose one mediator from a list provided by the employer, was unconscionable because the likelihood that the claimant would have a basis for choosing a mediator from the list who would be open to her contentions was slight.
In addition to finding substantive unconscionability, the court also found the agreement to be procedurally unconscionable. The plaintiff had no opportunity to negotiate the terms of the agreement and because of her naiveté and inexperience the plaintiff was incapable of understanding what she had signed. Thus, the court ruled that the plaintiff's acceptance of the agreement was not freely given and therefore the agreement was procedurally unconscionable.
The court ultimately denied the defendants' motion to stay proceedings and compel arbitration under the Federal Arbitration Act because of the substantive and procedural unconscionability of the ADR Agreement.