Federal District Court Decision Highlights Importance of Thoughtful Drafting in Arbitration Agreements
Employers in the First Circuit know that unconscionability challenges to employment arbitration agreements are commonplace. In Trainor v. Primary Residential Mortgage, Inc., the U.S. District Court for the District of Rhode Island recently addressed an employee’s arguments that an agreement’s venue clause requiring a Rhode Island employee to arbitrate her claims in Utah and a provision excluding certain claims from the scope of the arbitration agreement rendered the arbitration agreement unconscionable and unenforceable. The court rejected the first argument based on the employer’s on-the-record concession that it would agree to virtual arbitration, and the second because the exclusions from the arbitration agreement benefitted both parties and were cabined to limited circumstances. In light of Trainor, employers may want to review their arbitration agreements to preserve their ability to agree to virtual arbitration to moot a challenge to a venue clause and to ensure that any exceptions to the duty to arbitrate are symmetrical and narrowly tailored.
In early 2018, Nicole Trainor accepted a job with Primary Residential Mortgage, Inc. (“PRMI”) as a business development representative. Upon accepting the job offer, Ms. Trainor signed a required PRMI Standard Employment Agreement (“Agreement”) broadly stating the parties agreed to arbitrate all claims or disputes between them before the American Arbitration Association (“AAA”) in Utah. The Agreement then carved out four categories of claims from the arbitration provision: challenges to the validity of the Agreement’s class-action waiver, proceedings for administrative relief (such as unemployment benefits, disability insurance, workers’ compensation, and charges of employment discrimination), actions to enforce Ms. Trainor’s non-solicitation and confidentiality covenants, and claims that Ms. Trainor exceeded the scope of authority PRMI granted to her. Later that year, PRMI denied Ms. Trainor’s request for a remote-work accommodation, and subsequently terminated her employment on the grounds that her job required that she be physically present in the office. Ms. Trainor then filed suit, and PRMI moved to compel arbitration under the Agreement. Ms. Trainor opposed the motion by arguing that the Agreement was unconscionable (and therefore, unenforceable) for a variety of reasons.
The court granted PRMI’s motion to compel arbitration and rejected all of Ms. Trainor’s arguments that the Agreement was unconscionable. While it gave short shrift to most of her contentions, its reasoning behind rejecting two of them is noteworthy for employers.
First, Ms. Trainor argued the Agreement was “lopsided,” characterizing the arbitration clause’s four exceptions as giving PRMI the option to “litigate [virtually] any claim it would ever have against an employee in court,” while simultaneously constraining her to arbitration. The court rejected Ms. Trainor’s broad characterization of those exceptions. The court began by noting that two exceptions—namely, challenges to the validity of the class-action waiver and claims for administrative relief—actually benefitted Ms. Trainor, not PRMI. The court then recognized that the last two exceptions—specifically, actions to enforce Ms. Trainor’s restrictive covenants and claims asserting she exceeded the scope of her authority as PRMI’s agent—favored PRMI, but applied only in limited circumstances, leaving “many claims that could plausibly be brought by PRMI that would be subject to arbitration.” As such, “[a]lthough the lack of mutuality provide[d] some support for [Ms.] Trainor’s arguments, it [was] insufficient to render the arbitration provision unconscionable.”
Second, Ms. Trainor argued the Utah venue provision was logistically and financially oppressive, because it would require her to travel from Rhode Island (where she lived and worked) to Utah. The court deemed this argument moot, because PRMI conceded to virtual arbitration in its motion, and therefore, the arbitration would involve no travel or travel expenses.
Trainor is a helpful reminder to employers to review their arbitration agreements for two reasons:
First, in light of Trainor’s holding that the employer could permissibly carve out certain claims from the scope of the arbitration agreement, employers may want to reconsider their decision to exclude (or not to exclude) certain types of claims from their agreements’ purview. Employers whose arbitration agreements contain exceptions for certain types of actions against employees may want to review those exceptions to determine whether they are sufficiently narrow so that both the employer and employee have an obligation to arbitrate most of their claims against each other. Employers that rely on arbitration agreements that do not contain exceptions for certain types of actions against employees may want to consider adding them for claims that may be better suited for litigation, such as claims for injunctive relief to enforce restrictive covenants or to prevent the misappropriation of trade secrets.
Second, virtual arbitration may be appealing for some employers, particularly in the current COVID-19 environment, because it eliminates the burden of sending company representatives to testify wherever the employer might be subject to suit, while avoiding arguments that it is unfair or oppressive for employees to travel far away from their home states to arbitrate their claims. Employers interested in virtual arbitration should consider expressly referring to it in their agreements, or short of that, reviewing their agreements to ensure that none of their provisions (such as a modification or waiver clause) would prevent a court from giving effect to an on-the-record concession that the employer will submit to virtual arbitration instead of enforcing the agreement’s venue clause.
Taking these steps may help avoid motion practice over an arbitration agreement and increase the likelihood that a court will enforce it against an employee who seeks to avoid it.
Ashley Krezmien, a 2021 Summer Associate in the firm’s Boston office, contributed to the preparation of this post.