Court Report

Nov 1, 2003

HR Magazine, November 2003

Unfair Provisions Void Entire Arbitration Agreement
Also: Accomodating inability to procreate; non-compete agreements.

[ Alexander v. Anthony International, L.P. 3d Cir., No. 02-3764, Aug. 19, 2003. ]

An agreement that required employees to submit claims to arbitration within 30 days, provided only limited remedies and required the losing party to pay all arbitration costs was unenforceable in its entirety, the 3rd U.S. Circuit Court of Appeals recently ruled.

In 1996, Blaise Alexander and Gerald Freeman were hired as crane operators with Anthony International, a multinational heavy equipment contractor. The men, neither of whom had more than a seventh-grade education, were asked to sign an employment contract that contained a mandatory arbitration provision as a condition of employment. They had no opportunity to negotiate or otherwise reject the terms of the contract.

In 1997, Alexander and Freeman filed age and race discrimination claims against Anthony International in federal court. The trial court dismissed their claims and issued an order compelling arbitration. On appeal, the 3rd Circuit reversed, declaring the arbitration agreement unenforceable.

In determining the validity of an agreement to arbitrate, courts apply state-law principles governing the contracts. In most states, courts may invalidate an arbitration agreement under the doctrine of unconscionability, which requires evidence of both procedural and substantive unconscionability.

Procedural unconscionability concerns the manner in which the contract was negotiated and the relative positions of the parties to that negotiation. An agreement may be oppressive, and therefore unconscionable, if there is unequal bargaining power that results in an absence of meaningful negotiation for one party.

In the crane operators’ case, the arbitration agreement was imposed as a condition of employment on a “take-it-or-leave-it” basis. Because the men had “no real choice but to accept these terms,” the 3rd Circuit found that procedural unconscionability was shown.

The second required element—substantive unconscionability—focuses on the actual terms of the agreement and whether they are so one-sided as to “shock the conscience.” The contract signed by the crane operators provided an unreasonably short time in which to bring employment-related claims, and limited the employees’ ability to obtain full relief for such claims. Further, the agreement imposed expenses and fees on the employees that the court found were unfair, given the workers’ financial situations. Accordingly, the court found the arbitration agreement to be substantively unconscionable.

Because the arbitration agreement was both procedurally and substantively unconscionable, the 3rd Circuit found it to be unenforceable. Rather than delete the offending clauses and enforce the remainder, the court invalidated the entire agreement, stating “the cumulative effect of so much illegality prevents us from enforcing the arbitration agreement.”

By Maria Greco Danaher, an attorney with the law firm of Dickie, McCamey & Chilcote in Pittsburgh.

No Connection Between Inability to Procreate and Job Accomodation

[ Wood v. Crown Redi-Mix Inc.,, 8th Cir., No. 02-3506, Aug. 7, 2003. ]

An employee must show a causal connection between the employee’s substantial limitation in a major life activity and a requested accommodation to prove a violation of the Americans with Disabilities Act (ADA), the 8th U.S. Circuit Court of Appeals ruled in a case of first impression in the circuit.

Charles Wood worked for Crown Redi-Mix Inc. as a ready-mix concrete truck driver. In October 1998, he fell into a hole at the concrete plant and suffered permanent injuries. His treating physician imposed permanent work restrictions, prohibiting him from driving a ready-mix truck, lifting in excess of 50 pounds, and performing extensive bending, twisting and lifting.

In March 1999, Crown terminated Wood’s employment because he no longer could perform the duties of his truck-driving job, and Crown had no other open position to accommodate his restrictions. Wood filed suit under the ADA.

The lower court ruled in favor of Crown without a trial because Wood failed to make a threshold case of discrimination. Wood appealed to the 8th Circuit, which affirmed the trial court’s decision.

To get to trial in an ADA case, an individual must show, among other things, that he is disabled within the meaning of the statute. A plaintiff may do this by demonstrating that he has a physical or mental impairment that substantially limits one or more of his major life activities.

Wood claimed his injuries substantially limited him in the major life activities of walking, standing, turning, bending, lifting, working and procreation. The 8th Circuit determined that Wood presented insufficient evidence to show his injuries substantially -- as opposed to moderately -- limited him in any of the claimed activities, with the possible exception of procreation.

However, the court ruled, even if Wood’s injuries substantially limited him in the major life activity of procreation, that impairment could not be the basis for his ADA claim because the requested accommodation -- a non-truck-driving position -- was unrelated to the limitation.

The court reasoned that the ADA requires employers to reasonably accommodate limitations, not disabilities. Wood requested a non-truck-driving position because of his limitations in his ability to lift, bend, stand and walk, not because of his limitation in his ability to procreate. As the court stated, “Had the fall into the hole caused him only to be impotent, he would never have had to request a new position.” The court concluded that “because his limitation with respect to procreation bears no relationship to the accommodation he seeks...[he] has failed to make out a prima facie case of discrimination under the ADA.”

By Gina Gupta Srivastava, an attorney with the law firm of Spencer Fane Britt & Browne in Kansas City, Mo.

Overly Broad Non-competition

Agreement Unenforceable [Keener v. Convergys Corp., 11th Cir., No. 02-11324, Aug. 21, 2003.]

An employer’s non-competition agreement that prohibited a former employee from working for a competitor anywhere in the world and prohibited solicitation of any of the employer’s customers was overly broad and unenforceable under Georgia law, according to the 11th U.S. Circuit Court of Appeals.

But the appeals court would not support the trial court’s ruling that the non-competition agreement was unenforceable in any jurisdiction.

When James Keener began working for Convergys Corp. in Ohio, he signed a non-competition agreement that prohibited him from working for any Convergys competitor if he left the company. The agreement also prohibited him from soliciting any of Convergys’ customers. Keener and Convergys stipulated in the agreement that Ohio law would govern the enforcement and interpretation of the agreement.

Keener left Convergys, moved to Georgia and began working for H.O. Systems, a competitor of Convergys. Keener sued Convergys in a Georgia federal district court seeking an injunction and damages against Convergys.

Keener argued that under Georgia law the non-compete agreement was not enforceable. Convergys argued that the parties had agreed that Ohio law would apply, and that under Ohio law the non-compete agreement was enforceable.

The Georgia court sided with Keener. It found that the agreement violated Georgia’s public policy because it was too restrictive of Keener’s ability to find work. Georgia courts will not honor the parties’ choice of another state’s law to govern a non-compete agreement if that state’s law is inconsistent with Georgia’s law.

Applying Georgia law, the court declared the agreement unenforceable in its entirety. The district court then went a step further. It declared the non-compete agreement unenforceable in any court in any state.

On appeal, the 11th Circuit affirmed the trial court’s ruling in favor of Keener, except to the extent that it foreclosed Convergys’s efforts to enforce the agreement in another state. Some states are more liberal with non-compete agreements than Georgia, and the agreement may be enforceable in other jurisdictions, the court said.

By Paul C. Munger, an attorney with Jackson Lewis LLP in Atlanta.

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