My colleague Brian Berkley in Philadelphia wrote a piece in today’s Law360 titled “Can Opt-Out Provisions Save Arbitration Clauses?” He focuses on recent litigation involving Uber and its efforts to enforce arbitration agreements (which include class action waivers) against employees seeking to litigate wage and hour claims in court. Brian explains that Uber has been able to enforce its arbitration agreement against plaintiffs claiming that it’s unconscionable by pointing out that workers had the opportunity to opt out of the agreement. It’s a thoughtful article and I encourage you to read it.
I absolutely agree that it’s harder for workers to argue that an arbitration agreement was forced upon them if they are given a fair opportunity to opt out of its terms. The harder question, from my perspective, is this: Is the advantage of being able to use that argument worth the disadvantage of not having your arbitration program cover all employees?
Before I offer my perspective, let’s briefly explain unconscionability. Unconscionability has a procedural aspect (one party’s lack of meaningful choice) and a substantive aspect (terms that give an unfair advantage to one party). Both procedural and substantive unconscionability must be present before a court will refuse to enforce a contract.
Any contract where one party presents the terms on a take-it-or-leave-it basis has an element of procedural unconscionability. An adult who is out in the modern world signs these boilerplate agreements all the time. We sign them with banks, service providers, retailers, and – yes – even employers. So, getting back to the topic at hand, if you allow employees to opt out of an arbitration agreement, it will be easier to argue that the agreement is not procedurally unconscionable.
What you lose, though, is the ability to have an arbitration program cover all your employees. In practice, few employees opt out. But those that do may be the ones that are most likely to sue. For that reason, I rarely include opt-out provisions in arbitration agreements. If the agreement is not overly one-sided, i.e. it gives the employee a fair chance to vindicate his or her claims, it will still be enforceable. It may be procedurally unconscionable, but since you need both procedural and substantive unconscionability to strike down the contract, it’s still enforceable.
In theory, I suppose you could give employees the chance to opt out (so it’s not procedurally unconscionable) and then not worry about whether the agreement is substantively unconscionable. In other words, make the agreement as one sided as you want. But I don’t recommend that. First, California employers have to comply with the California Supreme Court decision in Armendariz v. Foundation Health Psychcare Services, which articulated minimum requirements for employment arbitration agreements. Second, there are judges at all levels of our state and federal court system who remain hostile to the idea of mandatory workplace arbitration. Third, you’ll probably get a lot more employees opting out. Fourth, what reasonable employer wants to deprive its workers of a fair forum to resolve disputes?
If you have a different perspective on opt-out provisions, please share them in the comments.