New York Business Litigation Lawyer Blog
We have discussed cases where the costs of arbitrating a dispute were so prohibitive that the First Department voided the arbitration agreement.
In a recent Federal decision out of Texas, a court modified an arbitration agreement’s cost and venue provisions, relieving a party from some of the costs she would otherwise have been obligated to pay.
As part of her employment, plaintiff agreed to arbitrate any claims arising from her employ. She commenced suit against her employer alleging wage and labor claims. The employer sought to compel arbitration. There was no dispute that the employee signed an arbitration agreement that covered her asserted claims. Instead, the employee argued that the agreement was unenforceable because it’s cost-splitting and venue provisions rendered it “substantively unconscionable.” The employer countered that the provisions were reasonable but if they were not, the court could sever those provisions while still compelling arbitration.
The court noted that an unconscionable arbitration agreement would not be enforced, and where costs of the arbitration precluded a party from being able to pursue its claims, the agreement could be unconscionable. Here, the court considered the employee’s income and obligations, and the expected cost of the arbitration, finding that her costs would effectively preclude her from being able to proceed with her claims. The same was true if the court were to enforce the agreement’s venue provision. Therefore, the arbitration agreement was, as written, “substantively unconscionable and consequently, enforceable.”
That said, the court refused to simply throw out the agreement, instead severing and striking the cost-splitting provisions but otherwise requiring plaintiff to arbitrate.
This highlights the general rule that a court will enforce a party’s agreement to arbitrate even if some of the arbitration agreement’s are disregarded.
Holsapple v. Doggett Equipment Services, Ltd.